UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

(Amendment No. 1)



| | ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------



For the fiscal year
ended December 31, 2016



OR



| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition
period from                     	to

Commission File Number: 001-32563



ORCHIDS PAPER PRODUCTS COMPANY





|A Delaware corporation                                         | 23-2956944                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)



4826
Hunt Street, Pryor, Oklahoma 74361

(Address of principal executive
offices)



Registrant's telephone number, including area code:
(918) 825-0616



Securities registered pursuant
to Section 12(b) of the Act:





|Title of each class            |  | Name of each exchange on which registered
|------------------------------ |  | -----------------------------------------
|Common Stock, $0.001 Par Value |  | NYSE MKT                                 



Securities registered
pursuant to Section 12(g) of the Act: None



Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒



Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒



Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐



Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐



Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check One).



|Large Accelerated Filer ☐ | Accelerated Filer ☒ | Non-accelerated Filer ☐                       | Smaller Reporting Company ☐
|------------------------- | ------------------- | --------------------------------------------- | ---------------------------
|                          |                     | (Do not check if a smaller reporting company) |                            



Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒



The aggregate market value
of the registrant's common equity held by non-affiliates was approximately $325.2 million as of June 30, 2016.



As of March 1, 2017,
there were outstanding 10,302,891 shares of common stock, none of which are held in treasury.



DOCUMENTS INCORPORATED BY REFERENCE



Portions
of the definitive Proxy Statement for the Registrant's 2017 Annual Meeting of Stockholders (the "Annual Meeting of Stockholders")
to be filed within 120 days after December 31, 2016, are incorporated by reference into Part III of this Form 10-K.


















|           | AMENDMENT NO. 1 TO THE ANNUAL
        REPORT ON FORM 10-K/A
        TABLE OF CONTENTS |   
|---------- | ------------------------------------------------------------------------------------- | --
|           | Page                                                                                 
|           | Explanatory Note                                                                      | 1 
|           |                                                                                       |   
|           | Part II                                                                               |   
|           |                                                                                       |   
|Item 8.    | Financial Statements and Supplementary Data                                           | 2 
|           |                                                                                       |   
|           | Part IV                                                                               |   
|           |                                                                                       |   
|Item 15.   | Exhibits and Financial Statement Schedules                                            | 36
|Signatures | 37                                                                                   





i







Explanatory Note



Orchids Paper Products Company (the “Company,”
“we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”)
to amend our Annual Report on Form 10-K for the year ended December 31, 2016, originally filed with the Securities and Exchange
Commission on March 15, 2017 (the “Original Filing”). This Amendment is being filed solely to correct an administrative
error in the date of the Report of Independent Registered Public Accounting Firm of HoganTaylor LLP (the “Report”).
The Report in the Original Filing incorrectly referenced “March 15, 2016” instead of “March 15, 2017” as
the date on which the Company’s independent auditor delivered the Report to the Company. The Report of Independent Registered
Public Accounting Firm with the correct date is filed herewith.



In accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, we have included the entire text of Part II, Item 8 of the Original Filing in this
Amendment There have been no changes to the text of the Original Filing other than the change stated in the immediately preceding
paragraph.



This Amendment does not reflect any events
occurring after the filing of the Original Filing nor does it amend or otherwise update any other information in the Original Filing.





1







PART II





Item
8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



INDEX TO FINANCIAL STATEMENTS



|Report of Independent Registered Public Accounting Firm                                                         | 3     
|--------------------------------------------------------------------------------------------------------------- | ------
|                                                                                                                |       
|Consolidated Balance Sheets as of December 31, 2016 and 2015                                                    | 4     
|                                                                                                                |       
|Consolidated Statements of Income for the Years ended December 31, 2016, 2015 and 2014                          | 5     
|                                                                                                                |       
|Consolidated Statements of Changes in Stockholders' Equity for the Years ended December 31, 2014, 2015 and 2016 | 6     
|                                                                                                                |       
|Consolidated Statements of Cash Flows for the Years ended December 31, 2016, 2015 and 2014                      | 7     
|                                                                                                                |       
|Notes to Consolidated Financial Statements                                                                      | 9 - 35



2







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM



To the Board of Directors and
Stockholders

Orchids Paper Products Company



We have audited the accompanying
consolidated balance sheets of Orchids Paper Products Company and subsidiaries as of December 31, 2016 and 2015, and the related
consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2016, and the financial statement schedule of Orchids Paper Products Company listed in Item 15(a). We also have audited
Orchids Paper Products Company's internal control over financial reporting as of December 31, 2016, based on criteria established
in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission
in 2013. Orchids Paper Products Company's management is responsible for these financial statements and financial statement schedule,
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on these financial statements and schedule and an opinion on the Company's internal control over financial
reporting based on our audits.



We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



A company's internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Orchids Paper Products Company and subsidiaries as of December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of America, and in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein. Also in our opinion, Orchids Paper Products Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established
in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013.



/s/ HOGANTAYLOR LLP



Tulsa, Oklahoma

March 15, 2017





3







ORCHIDS PAPER PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                            |  | As of December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                                                                                            |  | 2016               |        
|ASSETS                                                                                                                                                      |  |                    |        
|Current assets:                                                                                                                                             |  |                    |        
|Cash                                                                                                                                                        |  | $                  | 8,750  
|Accounts
    receivable, net of allowance of $30 in2016 and $155 in 2015                                                                                    |  |                    | 8,954  
|Receivables from related party                                                                                                                              |  |                    | 491    
|Inventories, net                                                                                                                                            |  |                    | 18,414 
|Income taxes receivable                                                                                                                                     |  |                    | 8,735  
|Prepaid expenses                                                                                                                                            |  |                    | 925    
|Other current assets                                                                                                                                        |  |                    | 868    
|Total current assets                                                                                                                                        |  |                    | 47,137 
|                                                                                                                                                            |  |                    |        
|Property, plant and equipment                                                                                                                               |  |                    | 320,442
|Accumulated depreciation                                                                                                                                    |  |                    | (71,258
|Net property, plant and equipment                                                                                                                           |  |                    | 249,184
|                                                                                                                                                            |  |                    |        
|Restricted cash                                                                                                                                             |  |                    | 1,276  
|VAT receivable                                                                                                                                              |  |                    | 212    
|Intangible assets, net of accumulated amortization
    of $3,479 in 2016 and $2,260 in 2015                                                                 |  |                    | 14,511 
|Goodwill                                                                                                                                                    |  |                    | 7,560  
|Total assets                                                                                                                                                |  | $                  | 319,880
|                                                                                                                                                            |  |                    |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                        |  |                    |        
|Current liabilities:                                                                                                                                        |  |                    |        
|Accounts payable                                                                                                                                            |  | $                  | 7,739  
|Accounts payable to related party                                                                                                                           |  |                    | 3,130  
|Accrued liabilities                                                                                                                                         |  |                    | 2,545  
|Current portion of long-term debt                                                                                                                           |  |                    | 6,728  
|Total current liabilities                                                                                                                                   |  |                    | 20,142 
|                                                                                                                                                            |  |                    |        
|Long-term debt, less current portion                                                                                                                        |  |                    | 133,989
|Other long-term liabilities                                                                                                                                 |  |                    | 5,170  
|Deferred income taxes                                                                                                                                       |  |                    | 27,334 
|Commitment and contingencies (Note 4)                                                                                                                       |  |                    |        
|Stockholders' equity:                                                                                                                                       |  |                    |        
|Common
    stock, $.001 par value, 25,000,000 shares authorized, 10,296,891 and 10,268,891shares issued
    and outstanding in 2016  and 2015, respectively |  |                    | 10     
|Additional paid-in capital                                                                                                                                  |  |                    | 98,885 
|Retained earnings                                                                                                                                           |  |                    | 34,350 
|Total stockholders' equity                                                                                                                                  |  |                    | 133,245
|Total liabilities and stockholders' equity                                                                                                                  |  | $                  | 319,880



See notes to consolidated financial statements.



4







ORCHIDS PAPER PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2016, 2015 and
2014

(In thousands, except share and per share
data)



|                                                                                |  | 2016 |            |   | 2015 |   |           | 2014 | 
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- | 
|Net sales                                                                       |  | $    | 164,494    |   |      | $ | 168,446   |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Cost of sales                                                                   |  |      | 134,345    |   |      |   | 137,949   |      | 
|Gross profit                                                                    |  |      | 30,149     |   |      |   | 30,497    |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Selling, general and administrative expenses                                    |  |      | 10,244     |   |      |   | 9,540     |      | 
|Intangibles amortization                                                        |  |      | 1,219      |   |      |   | 1,507     |      | 
|Operating income                                                                |  |      | 18,686     |   |      |   | 19,450    |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Interest expense                                                                |  |      | 1,678      |   |      |   | 521       |      | 
|Other (income) expense, net                                                     |  |      | (214       | ) |      |   | (683      | )    | 
|Income before income taxes                                                      |  |      | 17,222     |   |      |   | 19,612    |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Provision for (benefit from) income taxes:                                      |  |      |            |   |      |   |           |      | 
|Current                                                                         |  |      | (3,159     | ) |      |   | 1,820     |      | 
|Deferred                                                                        |  |      | 7,570      |   |      |   | 4,235     |      | 
|                                                                                |  |      | 4,411      |   |      |   | 6,055     |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Net income                                                                      |  | $    | 12,811     |   |      | $ | 13,557    |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Net income per common share:                                                    |  |      |            |   |      |   |           |      | 
|Basic                                                                           |  | $    | 1.25       |   |      | $ | 1.39      |      | 
|Diluted                                                                         |  | $    | 1.24       |   |      | $ | 1.38      |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Weighted average common shares used in calculating net income per common share: |  |      |            |   |      |   |           |      | 
|Basic                                                                           |  |      | 10,286,373 |   |      |   | 9,778,167 |      | 
|Diluted                                                                         |  |      | 10,349,274 |   |      |   | 9,844,221 |      | 
|                                                                                |  |      |            |   |      |   |           |      | 
|Dividends per share                                                             |  | $    | 1.40       |   |      | $ | 1.40      |      | 



See notes to consolidated financial statements.



5







ORCHIDS PAPER PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY

Years ended December 31, 2014, 2015 and
2016

(In thousands, except share data)



|                                                |  |              |            |   |         |   |    | Additional |  |   |          |   |  |       |        
|----------------------------------------------- |  | ------------ | ---------- | - | ------- | - | -- | ---------- |  | - | -------- | - |  | ----- | -------
|                                                |  | Common Stock |            |   | Paid-in |   |    | Retained   |  |   |          |  
|                                                |  | Shares       |            |   | Value   |   |    | Capital    |  |   | Earnings |   |  | Total |        
|Balance at December 31, 2013                    |  |              | 8,066,809  |   |         | $ | 8  |            |  | $ | 46,298   |   |  | $     | 38,543 
|Acquisition of Fabrica assets and U.S. business |  |              | 686,083    |   |         |   | 1  |            |  |   | 15,999   |   |  |       | -      
|Stock based compensation                        |  |              | (667       | ) |         |   | -  |            |  |   | 1,879    |   |  |       | -      
|Stock options exercised                         |  |              | 5,750      |   |         |   | -  |            |  |   | 79       |   |  |       | -      
|Dividends paid to stockholders                  |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | (11,779
|Net income                                      |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | 9,465  
|Excess tax benefit of stock options exercised   |  |              | -          |   |         |   | -  |            |  |   | 20       |   |  |       | -      
|Balance at December 31, 2014                    |  |              | 8,757,975  |   |         | $ | 9  |            |  | $ | 64,275   |   |  | $     | 36,229 
|Stock based compensation                        |  |              | (334       | ) |         |   | -  |            |  |   | 1,048    |   |  |       | -      
|Stock options exercised                         |  |              | 11,250     |   |         |   | -  |            |  |   | 210      |   |  |       | -      
|Net proceeds from follow-on stock offering      |  |              | 1,500,000  |   |         |   | 1  |            |  |   | 32,118   |   |  |       | -      
|Land donation                                   |  |              | -          |   |         |   | -  |            |  |   | 189      |   |  |       | -      
|Dividends paid to stockholders                  |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | (13,847
|Net income                                      |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | 13,557 
|Excess tax benefit of stock options exercised   |  |              | -          |   |         |   | -  |            |  |   | (6       | ) |  |       | -      
|Balance at December 31, 2015                    |  |              | 10,268,891 |   |         | $ | 10 |            |  | $ | 97,834   |   |  | $     | 35,939 
|Stock based compensation                        |  |              |            |   |         |   | -  |            |  |   | 566      |   |  |       | -      
|Stock options exercised                         |  |              | 28,000     |   |         |   | -  |            |  |   | 314      |   |  |       | -      
|Dividends paid to stockholders                  |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | (14,400
|Net income                                      |  |              | -          |   |         |   | -  |            |  |   | -        |   |  |       | 12,811 
|Excess tax benefit of stock options exercised   |  |              | -          |   |         |   | -  |            |  |   | 171      |   |  |       | -      
|Balance at December 31, 2016                    |  |              | 10,296,891 |   |         | $ | 10 |            |  | $ | 98,885   |   |  | $     | 34,350 



See notes to consolidated financial statements.



6







ORCHIDS PAPER PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2016, 2015 and
2014

(In thousands)



|                                                                                  |  | 2016 |         |   | 2015 |   |         | 2014 | 
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|                                                                                  |  |      |         |   |      |   |         |      | 
|Cash Flows From Operating Activities                                              |  |      |         |   |      |   |         |      | 
|Net income                                                                        |  | $    | 12,811  |   |      | $ | 13,557  |      | 
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |      | 
|Depreciation and amortization                                                     |  |      | 13,229  |   |      |   | 11,420  |      | 
|Provision for doubtful accounts                                                   |  |      | (125    | ) |      |   | -       |      | 
|Deferred income taxes                                                             |  |      | 7,570   |   |      |   | 4,235   |      | 
|Stock compensation expense                                                        |  |      | 566     |   |      |   | 1,048   |      | 
|Loss on disposal of property, plant and equipment                                 |  |      | 17      |   |      |   | -       |      | 
|Changes in cash due to changes in operating assets and liabilities:               |  |      |         |   |      |   |         |      | 
|Accounts receivable                                                               |  |      | 2,514   |   |      |   | (1,640  | )    | 
|Inventories                                                                       |  |      | (4,913  | ) |      |   | (3,852  | )    | 
|Income taxes receivable                                                           |  |      | (3,107  | ) |      |   | (4,994  | )    | 
|Prepaid expenses                                                                  |  |      | 211     |   |      |   | 149     |      | 
|Other assets                                                                      |  |      | 2,237   |   |      |   | (972    | )    | 
|Accounts payable                                                                  |  |      | (973    | ) |      |   | (293    | )    | 
|Accrued liabilities                                                               |  |      | (2,210  | ) |      |   | 133     |      | 
|Net cash provided by operating activities                                         |  |      | 27,827  |   |      |   | 18,791  |      | 
|                                                                                  |  |      |         |   |      |   |         |      | 
|Cash Flows From Investing Activities                                              |  |      |         |   |      |   |         |      | 
|Acquisition of Fabrica assets and U.S. business                                   |  |      | -       |   |      |   | -       |      | 
|Purchases of property, plant and equipment                                        |  |      | (88,862 | ) |      |   | (63,184 | )    | 
|Proceeds from insurance settlement related to capital investment                  |  |      | 420     |   |      |   | -       |      | 
|Proceeds from sale of property, plant and equipment                               |  |      | 34      |   |      |   | -       |      | 
|Decrease (increase) in restricted cash                                            |  |      | 10,729  |   |      |   | (12,005 | )    | 
|Purchases of short-term investments                                               |  |      | -       |   |      |   | -       |      | 
|Proceeds from the sale of short-term investments                                  |  |      | -       |   |      |   | -       |      | 
|Net cash used in investing activities                                             |  |      | (77,679 | ) |      |   | (75,189 | )    | 
|                                                                                  |  |      |         |   |      |   |         |      | 
|Cash Flows From Financing Activities                                              |  |      |         |   |      |   |         |      | 
|Borrowings under long-term debt                                                   |  |      | -       |   |      |   | 31,109  |      | 
|Proceeds from economic incentive                                                  |  |      | 1,900   |   |      |   | -       |      | 
|Net proceeds under New Market Tax Credit financing                                |  |      | -       |   |      |   | 5,098   |      | 
|Principal payments on long-term debt                                              |  |      | (3,882  | ) |      |   | (2,700  | )    | 
|Net borrowings on revolving credit line                                           |  |      | 70,267  |   |      |   | 10,810  |      | 
|Bank overdrafts                                                                   |  |      | -       |   |      |   | (1,706  | )    | 
|Proceeds from follow-on stock offering                                            |  |      | -       |   |      |   | 32,119  |      | 
|Dividends paid to stockholders                                                    |  |      | (14,400 | ) |      |   | (13,847 | )    | 
|Proceeds from the exercise of stock options                                       |  |      | 314     |   |      |   | 210     |      | 
|Excess tax benefit of stock options exercised                                     |  |      | 171     |   |      |   | (6      | )    | 
|Deferred debt issuance costs                                                      |  |      | (129    | ) |      |   | (1,349  | )    | 
|Net cash provided by financing activities                                         |  |      | 54,241  |   |      |   | 59,738  |      | 
|                                                                                  |  |      |         |   |      |   |         |      | 
|Net increase (decrease) in cash                                                   |  |      | 4,389   |   |      |   | 3,340   |      | 
|Cash, beginning                                                                   |  |      | 4,361   |   |      |   | 1,021   |      | 
|Cash, ending                                                                      |  | $    | 8,750   |   |      | $ | 4,361   |      | 



See notes to consolidated financial statements.



7







ORCHIDS PAPER PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years ended December 31, 2016, 2015 and
2014

(In thousands)



|Supplemental Disclosure:                           |  |   |       |  |  |   |       |  | 
|-------------------------------------------------- |  | - | ----- |  |  | - | ----- |  | 
|Interest paid                                      |  | $ | 2,907 |  |  | $ | 720   |  | 
|Income taxes paid, net                             |  | $ | 13    |  |  | $ | 6,722 |  | 
|Tax benefits realized from stock options exercised |  | $ | 211   |  |  | $ | 23    |  | 
|Capital expenditures invoiced but not yet paid     |  | $ | 744   |  |  | $ | -     |  | 
|Stock issued for Fabrica assets and U.S. business  |  | $ | -     |  |  | $ | -     |  | 
|Value of donated land                              |  | $ | -     |  |  | $ | 189   |  | 



See notes to consolidated financial statements.



8







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of
Significant Accounting Policies



Business





Orchids
Paper Products Company and its subsidiaries (collectively, “Orchids” or the “Company”) produce bulk tissue
paper, known as parent rolls, and convert parent rolls into finished products, including paper towels, bathroom tissue and paper
napkins. The Company predominately sells its products for use in the "at home" market under private labels to a customer
base consisting primarily of dollar stores, discount retailers and grocery stores that offer limited alternatives across a wide
range of products, and, to a lesser extent, the “away from home” market. The Company has owned and operated its manufacturing
facility in Pryor, Oklahoma since 1998. On June 3, 2014, the Company completed the acquisition of certain assets from Fabrica de
Papel San Francisco, S.A. de C.V. (“Fabrica”) pursuant to an Asset Purchase Agreement (see Note 2). In connection with
the acquisition of these assets, the Company formed three wholly owned subsidiaries: Orchids Mexico DE Holdings, LLC, Orchids Mexico
DE Member, LLC, and OPP Acquisition Mexico, S. de R.L. de C.V. (“Orchids Mexico”). In April 2015, the Company announced
the construction of a new manufacturing facility in Barnwell, South Carolina. In conjunction with this project, the Company established
a wholly owned subsidiary: Orchids Paper Products Company of South Carolina. Furthermore, in connection with a New Market Tax Credit
(“NMTC”) transaction in December 2015 (see Note 12), the Company created Orchids Lessor SC, LLC, another wholly owned
subsidiary.





The Company's
stock trades on the NYSE MKT under the ticker symbol "TIS."



Summary of Significant Accounting Policies



Principles of consolidation



The
accompanying consolidated financial statements include the accounts of Orchids Paper Products Company, its wholly owned
subsidiaries, as described above, and variable interest entities for which Orchids is the primary beneficiary. All
significant intercompany transactions and balances have been eliminated in consolidation.



Cash



Cash includes
cash on hand and cash in banks that management expects to utilize for operational activities.



Accounts receivable



Accounts receivable
are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts.
A trade receivable is considered to be past due if it is outstanding for more than five days past terms. Management determines
the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial
condition, credit history, and current economic conditions. Receivables are written-off when deemed uncollectible. Recoveries
of receivables previously written-off are recorded when received. The Company does not typically charge interest on trade receivables.



Inventories



Inventories
consist of converted finished goods, bulk paper rolls and raw materials stated at the lower of cost or net realizable value (market).
The Company's cost is based on standard cost, specific identification, or FIFO (first-in, first-out) method. Standard costs approximate
actual costs on a FIFO basis. Material, labor, and factory overhead necessary to produce the inventories are included in the standard
cost to the extent such input costs do not result in values in excess of net realizable value.



9







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of Significant
Accounting Policies (Continued)



Property, plant and equipment



Property, plant
and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over
the estimated useful lives of the assets. The Company expenses normal maintenance and repair costs as incurred. Spare parts that
are maintained to keep the Company’s machinery and equipment in working order are capitalized and expensed when used rather
than depreciated. Gain and loss on disposal of property, plant and equipment is recognized in the period incurred. The Company
capitalizes interest for major capital projects. Capitalized interest is added to the cost of the underlying assets and is depreciated
over the useful lives of those assets.



Goodwill, intangible assets and long-lived assets



The Company records
the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed
as goodwill. Goodwill is tested for impairment annually as well as when an event, or change in circumstances, indicates that the
carrying value may not be recoverable.



Under accounting
principles generally accepted in the United States (“U.S. GAAP”), the Company may first assess qualitative factors
to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the
fair value of its reporting unit is greater than its carrying amount. If, after assessing the totality of events or circumstances,
the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount,
there is no need to perform any further testing. However, if the Company concludes otherwise, it is required to perform the first
step of a two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying
amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, it is required to perform
the second step of the two-step impairment test, in which an impairment loss is calculated and recorded to the extent that the
implied fair value of the goodwill of the reporting unit is less than its carrying value. Alternatively, the Company may bypass
the qualitative assessment in any period and proceed directly to performing the first step of the two-step goodwill impairment
test.



The Company performed
its annual goodwill impairment test on October 1, 2016 by performing the first step (e.g. “step zero”), a qualitative
impairment test, to determine whether it was more likely than not that goodwill was impaired. Goodwill is tested at a level of
reporting referred to as the “reporting unit”. The Company has two reporting units, which are defined as the “at
home” business and the “away from home” business. Based on this qualitative test, we determined it was more
likely than not that the fair value of the Company’s reporting units were greater than their carrying amounts; as such,
we determined that performing the second and third steps of the impairment test were not necessary and that goodwill was not impaired.



Intangible assets
consist of the Supply Agreement and Equipment Lease Agreements with Fabrica (see Note 2), licenses, trademarks, customer relationships
and a non-compete agreement. The Company amortizes these assets on a straight-line basis over the expected lives of the assets,
which range from 2 to 20 years.



The Company reviews
its long-lived assets, primarily property, plant and equipment and intangible assets, for impairment whenever events or changes
in circumstances indicate that the carrying values may not be recoverable. Impairment evaluation is based on estimates of remaining
useful lives and the current and expected future profitability and cash flows. The determination of future profitability and cash
flows require significant estimates to be made by the Company’s management. The Company had no impairment of long-lived
assets during the years ended December 31, 2016, 2015 or 2014.



10







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of Significant
Accounting Policies (Continued)



Income taxes



Income taxes are
computed in accordance with the tax rules and regulations of the taxing authorities where the income is earned. Deferred income
taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the
tax basis of the Company's assets and liabilities. Future tax benefits are recognized to the extent that realization of those
benefits is considered to be more likely than not. A valuation allowance is provided for deferred tax assets for which realization
is not likely. The Company uses the flow through method to account for Oklahoma and South Carolina investment tax credits earned
on eligible capital expenditures in the respective states. Under this method, the investment tax credits are recognized as a reduction
to income tax expense when earned.



Deferred debt issuance costs



Costs incurred
in obtaining debt funding are deferred and amortized on an effective interest method over the terms of the loans. Amortization
expense for 2016, 2015 and 2014 was $294,000, $198,000, and $60,000, respectively, and has been classified as interest expense
in the statement of income.



Stock compensation expense





Grant-date
cost of stock options and restricted stock are recognized on a straight-line basis over the requisite service periods of the respective
options and shares, based on the fair value of the award on the grant date. The fair value of stock options that have time-based
vesting requirements is estimated using the Black-Scholes option-pricing model. The fair value of stock options that have market-based
vesting requirements is estimated using a Monte-Carlo option-pricing model. The fair value of restricted stock awards is calculated
as the arithmetic mean of the high and low market price of the Company’s stock on the grant date.





Excess tax benefits
related to share-based compensation that are available to absorb future tax deficiencies related to share-based compensation are
recorded in additional paid-in capital ("APIC pool") when realized. If the amount of tax deficiencies is greater than
the available APIC pool, the excess is recorded as current income tax expense in the statement of income.



Revenue recognition



Revenues for products
loaded on customer trailers are recognized when the customer has accepted custody and left the Company's dock. Revenues for products
shipped to customers are recognized when title passes upon shipment. Customer discounts and pricing allowances are included in
net sales.



Shipping and handling costs



Shipping and handling
costs incurred to ship raw materials to the Company's facilities are included in inventory and cost of sales in the statement
of income. Shipping and handling costs incurred to ship finished goods to customer locations and warehouse locations are included
in cost of sales in the statement of income.



Business interruption insurance



In 2016, the Company
received $1.1 million of proceeds under a business interruption insurance policy for an incident that occurred in its Oklahoma
converting operation in 2015. This amount is recorded as a reduction of cost of sales in the statement of income.



11







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of Significant
Accounting Policies (Continued)



Advertising costs



Advertising costs, which include costs related to
artwork and packaging development, totaled approximately $438,000, $319,000, and $292,000, respectively, for the years ended
December 31, 2016, 2015 and 2014. These costs are expensed when incurred and included in selling, general and administrative
expenses.



Use of estimates



The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ significantly from those estimates.



Reclassifications



Certain immaterial
prior period amounts in the accompanying financial statements have been reclassified to conform to the current period presentation.
These reclassifications did not affect previously reported amounts of net income.



New and recently adopted accounting pronouncements



In November 2015,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires
that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17
is effective for public companies for annual and interim periods beginning after December 15, 2016. During 2016, we
elected to early adopt ASU 2015-17 on a retrospective basis. As such, we reclassified $1.3 million of current deferred tax assets
to noncurrent (netted within noncurrent liabilities) on the consolidated balance sheets as of December 31, 2015. The adoption
of ASU 2015-17 did not affect our consolidated statements of income.



In April 2015,
the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s
Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”).  ASU 2015-05 provides guidance
to customers about whether a cloud computing arrangement includes a software license.  If a cloud computing arrangement includes
a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition
of other software licenses.  If a cloud computing arrangement does not include a software license, the customer should account
for the arrangement as a service contract.  The guidance does not change the accounting for a customer’s service contracts. 
ASU 2015-05 became effective for the Company on January 1, 2016. Adoption of ASU 2015-05 did not have a material effect on our
consolidated financial statements.



In April 2015,
the FASB issued ASU No.2015-03, Interest – Imputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).  ASU
2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued
Accounting Standards Update 2015-15, “Interest – Imputation of Interest: Presentation and Subsequent Measurement of
Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15). ASU 2015-15 states that since ASU
2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements,
the SEC staff will not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing
the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 became effective for the Company on January 1, 2016. As
such, we reclassified $1.3 million of unamortized debt issuance costs, including costs associated with our revolving lines of
credit, as of December 31, 2015, to offset long-term debt in the consolidated balance sheets (see Note 7). Adoption of ASU 2015-03
and ASU 2015-15 did not affect our consolidated statements of income.



12







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of Significant
Accounting Policies (Continued)



In
January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment(“ASU 2017-04”). ASU 2017-04 provides fora one-step quantitative impairment test, whereby
a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not
to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment
test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill
with the carrying amount of that goodwill. ASU 2017-04 is effective, on a prospective basis, for SEC filers for interim and annual
periods beginning after December 15, 2019, with early adoption permitted. Management is currently assessing the impact ASU
2017-04 will have on the Company, but it is not expected to have a material impact on the Company’s financial statements.



In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business(“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
ASU 2017-01 is effective, on a prospective basis, forpublic companies for interim
and annual reporting periods beginning after December 15, 2017.Management is currently assessing the impact ASU 2017-00
will have on the Company, but it is not expected to have a material impact on the Company’s financial statements.



In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”).
ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. ASU No 2016-18 is effective, on a retrospective basis, for public companies for
interim and annual periods beginning after December 15, 2017, with early adoption permitted.Management is currently assessing
the impact ASU 2016-18 will have on the Company, but it is not expected to have a material impact on the Company’s cash
flows.



In
October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory(“ASU 2016-16”). ASU 2016-16 requires the
recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.
ASU 2016-16 is effective for public companies for interim and annual reporting periods beginning after December 15, 2017,
with early adoption permitted. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of adoption.Management is currently assessing
the impact ASU 2016-16 will have on the Company’s financial position and results of operations.



In August 2016,
the FASB issued ASU No.2016-15, Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 will make
eight targeted changes to how cash receipts and cash payments are presented and classified in the statement
of cash flows. ASU 2016-15 is effective for public companies for interim and annual periods beginning after December 15, 2017,
with early adoption permitted. The new standard will require adoption on a retrospective basis unless it is impracticable to apply,
in which case it would be required to apply the amendments prospectively as of the earliest date practicable. Management is currently
assessing the impact ASU 2016-15 will have on the Company, but it is not expected to have a material impact on the Company’s
cash flows.



In June 2016,
the FASB issued ASU No.2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU
2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13
is effective for SEC filers for interim and annual periods beginning after December 15, 2019. Management is currently assessing
the impact ASU 2016-13 will have on the Company, but it is not expected to have a material impact on the Company’s financial
position, results of operations and cash flows.



13







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 1—Nature of Business and Summary of Significant
Accounting Policies (Continued)



In March 2016,
the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting (“ASU 2016-09”). ASU 2016-09 requires, among other things, that excess tax benefits and tax
deficiencies be recognized as income tax expense or benefit in the income statement rather than as additional paid-in capital,
changes the classification of excess tax benefits from a financing activity to an operating activity in the statement of cash
flows, and allows forfeitures to be accounted for when they occur rather than estimated. ASU 2016-09 is effective for the Company
on January 1, 2017. Adopting ASU 2016-09 will not have a material impact on the Company’s financial position, results of
operations and cash flows.



In February 2016,
the FASB issued ASU No.2016-02, Leases (Topic 842)(“ASU
2016-02”). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet but did not
make significant changes to the effects of lessee accounting on the income statement or statement of cash flows. ASU 2016-02 is
effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted.
Management is currently assessing the impact ASU 2016-02 will have on the Company’s financial position.



In January 2016,
the FASB issued ASU No.2016-01, Financial Instruments
– Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).
ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments, specifically
equity investments and financial instruments measured at amortized cost. ASU 2016-01 is effective for public companies for annual
and interim periods beginning after December 15, 2017. Management is currently assessing the impact ASU 2016-01 will have, if
any, on the Company’s financial position, results of operations and cash flows.



In July 2015,
the FASB issued ASU No.2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory(“ASU 2015-11”). ASU 2015-11 requires inventory measured using all methods
other than the last-in, first-out (LIFO) or retail methods to be measured at the lower of cost or net realizable value. Net realizable
value is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion,
disposal and transportation. ASU 2015-11 is effective for the Company on January 1, 2017. Adopting ASU 2015-11 will not have a
material impact on the Company’s financial position, results of operations and cash flows.



In May 2014,
the FASB issued ASU No.2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASU 2014-09”).  ASU 2014-09 clarifies the principles for recognizing revenue
and develops a common revenue standard under U.S. GAAP under which an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services.  Due to the issuance of ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606); Deferral of the Effective Date (“ASU 2015-14”), in July 2015, the effective date of ASU 2014-09 was
deferred for one year and becomes effective for the Company for interim and annual periods beginning on or after December 15,
2017.  In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). ASU 2016-08 clarifies implementation
guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from
Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). In May
2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients (“ASU 2016-12”). ASU 2016-10 and ASU 2016-12 do not change the guidance under ASU 2014-09, but clarify
certain aspects of this guidance. In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives
and Hedging (Topic 815) (“ASU 2016-11”). ASU 2016-11 rescinds certain SEC accounting guidance that is inconsistent
with guidance in ASU 2014-09. Management is currently assessing the impact these ASUs will have on the Company, but they are not
expected to have a material effect on the Company’s financial position, results of operations or cash flows.



14







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 2—Fabrica Transaction



On May 5, 2014,
Orchids Paper Products Company and its wholly owned subsidiary, Orchids Mexico, entered into an asset purchase agreement (“APA”)
with Fabrica to acquire certain assets and 100% of the U.S. business of Fabrica. On June 3, 2014, the Company closed on the transaction
set forth in the APA, and in connection therewith, entered into a supply agreement (“Supply Agreement”) and an equipment
lease agreement (“Equipment Lease Agreement”) (collectively, the “Fabrica Transaction”).



Asset Purchase Agreement and Assignment and Assumption
of Supply Agreement



Pursuant to the
terms of the APA, Orchids Mexico acquired a paper machine, two converting lines, Fabrica’s U.S. customer list, exclusive
rights to all of Fabrica’s trademarks in the United States, and Fabrica’s covenant not to compete in the United States.
The purchase price consisted of 411,650 shares of Orchids’ common stock, which were valued at $12.0 million based on the
closing price of the Company’s shares on the closing date and had a fair market value of $9.6 million on the closing date
due to restrictions on the sale of the stock. In connection with closing the APA, Orchids Paper Products Company also entered
into an Assignment and Assumption of Supply Agreement with Elgin Finance & Investment Corp. (“Elgin”) for $16.7
million in cash and 274,433 shares of Orchids’ common stock, which were valued at $8.0 million based on the closing price
of the Company’s shares on the closing date and had a fair market value of $6.4 million on the closing date due to restrictions
on the sale of the stock, in exchange for the assignment to Orchids of Elgin’s supply agreement with Fabrica which provided
Elgin exclusive supply rights with respect to Fabrica’s U.S. business.



Under the Supply
Agreement, the Company has the right to purchase from Fabrica up to 19,800 tons of parent rolls and equivalent converting capacity
for certain specified product during each twelve-month period following the effective date of the Supply Agreement. The Supply
Agreement also allowed the Company to purchase up to an additional 7,700 tons annually in each of the first two years of the agreement.
Pursuant to the terms of the Supply Agreement, Fabrica and its affiliates will be subject to a non-compete provision with respect
to business in the U. S. The Supply Agreement has an initial term of twenty years. In the event of a termination of the Supply
Agreement due to (i) a material breach as a result of intentional, willful or grossly negligent conduct by Fabrica, (ii) a breach
of Fabrica’s covenant not to compete, or (iii) a voluntary filing of bankruptcy by Fabrica, Fabrica must pay the Company
$100 million in liquidated damages. In the event of a change of control of Fabrica, the Company will have a two-year right to
terminate the Supply Agreement, and in such event, Fabrica would be required to pay the Company liquidated damages of $36.7 million.





Equipment Lease Agreement



Pursuant to the
terms of the Equipment Lease Agreement, Orchids Mexico will lease the paper making and converting assets acquired under the APA
back to Fabrica. The rental fee will be based upon the number of metric tons shipped by Fabrica to the Company, subject to annual
adjustment based on the calculation of the purchase price for product under the Supply Agreement. The Equipment Lease Agreement
has a term of twenty years, but will terminate automatically upon termination of the Supply Agreement.



Upon the earlier
of (i) the termination of the Equipment Lease Agreement or (ii) the purchase by Orchids of a separate papermaking or converting
asset and the entry into of an equipment lease agreement between Orchids and Fabrica with respect to such purchased asset, Orchids
Mexico shall have the right to sell to Fabrica the paper assets leased under the Equipment Lease Agreement on an as-is-where-is
basis, for $12.0 million.



15







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 2—Fabrica Transaction
(continued)



Purchase Price Allocation



The acquisition
of Fabrica’s U.S. business in the Fabrica Transaction is being accounted for under the Financial Accounting Standards Board’s
(the “FASB”) Accounting Standards Codification 805, “Business Combinations”. The $32.7 million purchase
price of $16.7 million in cash (financed by a term loan) and $16.0 million in common stock was allocated as follows (in thousands):



|Total purchase price                                     |  | $ | 32,700 | 
|-------------------------------------------------------- |  | - | ------ | 
|Less: net assets acquired                                |  |   |        | 
|Machinery & equipment                                    |  |   | 7,150  | 
|Intangible asset - supply and equipment lease agreements |  |   | 12,800 | 
|Intangible asset - licenses/trademarks                   |  |   | 1,350  | 
|Intangible asset - non-compete agreement                 |  |   | 1,150  | 
|Intangible asset - customer relationships                |  |   | 2,690  | 
|Goodwill                                                 |  | $ | 7,560  | 



Intangibles and goodwill



Intangible assets
at December 31, 2016 were:



|                                                         |  |            |  | Gross          |        |  |              |   |       | Net      | 
|-------------------------------------------------------- |  | ---------- |  | -------------- | ------ |  | ------------ | - | ----- | -------- | 
|                                                         |  | Life       |  | Carrying       |        |  | Accumulated  |   |       | Carrying | 
|                                                         |  | (in years) |  | Amount         |        |  | Amortization |   |       | Value    | 
|                                                         |  |            |  | (in thousands) |       
|Intangible asset - supply and equipment lease agreements |  | 20         |  | $              | 12,800 |  |              | $ | 1,600 |          | 
|Intangible asset - licenses/trademarks                   |  | 20         |  |                | 1,350  |  |              |   | 169   |          | 
|Intangible asset - non-compete agreement                 |  | 2          |  |                | 1,150  |  |              |   | 1,150 |          | 
|Intangible asset - customer relationships                |  | 12         |  |                | 2,690  |  |              |   | 560   |          | 
|                                                         |  |            |  | $              | 17,990 |  |              | $ | 3,479 |          | 



Intangible assets
at December 31, 2015 were:



|                                                         |  |            |  | Gross          |        |  |              |   |       | Net      | 
|-------------------------------------------------------- |  | ---------- |  | -------------- | ------ |  | ------------ | - | ----- | -------- | 
|                                                         |  | Life       |  | Carrying       |        |  | Accumulated  |   |       | Carrying | 
|                                                         |  | (in years) |  | Amount         |        |  | Amortization |   |       | Value    | 
|                                                         |  |            |  | (in thousands) |       
|Intangible asset - supply and equipment lease agreements |  | 20         |  | $              | 12,800 |  |              | $ | 960   |          | 
|Intangible asset - licenses/trademarks                   |  | 20         |  |                | 1,350  |  |              |   | 101   |          | 
|Intangible asset - non-compete agreement                 |  | 2          |  |                | 1,150  |  |              |   | 863   |          | 
|Intangible asset - customer relationships                |  | 12         |  |                | 2,690  |  |              |   | 336   |          | 
|                                                         |  |            |  | $              | 17,990 |  |              | $ | 2,260 |          | 



Estimated future
intangible amortization expense is $0.9 million in 2017, 2018, 2019, 2020, and 2021, respectively.



16







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 2—Fabrica
Transaction (Continued)



Goodwill of $7.6
million represents the premium the Company was willing to pay to enter into a long-term relationship with Fabrica and the benefits
the Company expects to receive from being able to cost effectively serve its current customers and to develop relationships with
new customers with distribution centers in the western United States. The relationship with Fabrica is expected to provide opportunities
for future production capacity and sales growth. Goodwill is not amortized, but is tested at least annually for impairment, or
if circumstances occur that more likely than not will reduce the fair value of the reporting unit to below its carrying amount.
No goodwill impairment has been recorded as of December 31, 2016. There were no other changes in the carrying amount of goodwill
subsequent to the acquisition. All of the goodwill related to the Fabrica Transaction is expected to be tax-deductible.



Operating Results of Business Acquired



The consolidated
statements of income include the following revenues and operating income related to the U.S. business acquired from Fabrica:



|                 |  | Year Ended December
    31, |       
|---------------- |  | --------------------------- | ------
|                 |  | 2016                        |       
|                 |  |                             |       
|Revenues         |  | $                           | 42,045
|Operating income |  |                             | 10,583



Operating income
included in the above table does not include an allocation of any of the Company’s overhead or selling, general and administrative
expenses.



Transaction costs
of $1.6 million related to the Fabrica Transaction are recognized in selling, general and administrative expenses in the consolidated
statement of income for the year ended December 31, 2014.



Pro Forma Information (unaudited)



The following
unaudited pro forma information presents a summary of the operating results of the Company for the year ended December 31, 2014
as if the U.S. business acquired from Fabrica had been included in the Company’s results of operations as of January 1,
2014 (dollars in thousands, except per share data):



|Pro forma net sales                      |  | $ | 156,886 | 
|---------------------------------------- |  | - | ------- | 
|Pro forma net income                     |  |   | 11,537  | 
|Pro forma net income per share - basic   |  |   | 1.32    | 
|Pro forma net income per share - diluted |  |   | 1.31    | 



Pro forma adjustments
to net income include amortization costs related to the intangibles acquired, acquisition related costs, and the tax effect of
the historical results of operations of Fabrica’s U.S. business, excluding certain mark-up and selling, general and administrative
costs that will not be incurred by Orchids.



The pro forma
amounts are presented for informational purposes only and are not intended to represent or be indicative of the Company’s
consolidated results of operations or financial condition that would have been reported had the acquisition been completed as
of the beginning of the periods presented and should not be taken as indicative of the Company’s future consolidated results
of operations or financial condition.



17







ORCHIDS PAPER PRODUCTS
COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 2—Fabrica Transaction (Continued)



Related party transactions



The Company incurred the following
transactions with Fabrica during the years ended December 31, 2016, 2015 and 2014:



|                                                              |  | Year Ended December
    31, |       
|------------------------------------------------------------- |  | --------------------------- | ------
|                                                              |  | 2016                        |       
|                                                              |  | (In thousands)              |       
|Products purchased under the Supply Agreement                 |  | $                           | 31,974
|Amounts billed to Fabrica under the Equipment Lease Agreement |  | $                           | 1,647 
|Parent rolls purchased by Fabrica                             |  | $                           | 1,777 



Note 3—Fair Value Measurements



The valuation
hierarchy included in U.S. GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement
date. The less transparent or observable the inputs used to value assets and liabilities, the lower the classification of the
assets and liabilities in the valuation hierarchy. A financial instrument's classification within the valuation hierarchy is based
on the lowest level of input that is significant to its fair value measurement. The three levels of the valuation hierarchy and
the classification of the Company's financial assets and liabilities within the hierarchy are as follows:



Level 1—Quoted prices (unadjusted)
in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.



Level 2—Observable inputs other
than quoted prices included within Level 1 for the asset or liability, either directly or indirectly. If an asset or liability
has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability.



Level 3—Unobservable inputs
for the asset or liability.



The Company does
not report any assets or liabilities at fair value in the financial statements. However, the fair value of the Company's long-term
debt is estimated by management to approximate the carrying value of $142.0 million and $75.6 million at December 31, 2016 and
2015, respectively. Management's estimates are based on periodic comparisons of the characteristics of the Company's obligations,
including floating interest rates, credit rating, maturity and collateral, to current market conditions as stated by an independent
third-party financial institution. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.



As the Company
has no assets or liabilities reported at fair value in the financial statements, there were no transfers among Level 1, Level
2 or Level 3 assets during the years ended December 31, 2016, 2015 and 2014.



18









ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 4—Commitments and Contingencies



The Company may be
involved from time to time in litigation arising from the normal course of business. In management's opinion, as of the date of
this report, the Company is not engaged in legal proceedings, which individually or in the aggregate are expected to have a materially
adverse effect on the Company's results of operations or financial condition.



Gas purchase commitments



The Company has entered
into a natural gas fixed price contract to purchase 467,505 MMBTUs of natural gas, which provides approximately 80% to 90% of
the natural gas requirements at Pryor through December 31, 2017. Commitments under this contract are as follows:



|Period                                                |  |                                                           |  | MMBTUs |  |         | Price per  MMBTU | 
|----------------------------------------------------- |  | --------------------------------------------------------- |  | ------ |  | ------- | ---------------- | 
|January
                                         2017 |  | -
                                         March 2017     |  |        |  | 114,850 |                  | 
|April
                                         2017   |  | -
                                         June 2017      |  |        |  | 117,050 |                  | 
|July
                                         2017    |  | -
                                         September 2017 |  |        |  | 118,550 |                  | 
|October
                                         2017 |  | -
                                         December 2017  |  |        |  | 117,055 |                  | 



Purchases under the
gas contract were $1.7 million, $1.7 million, and $1.9 million in 2016, 2015 and 2014, respectively. If the Company is unable
to purchase the contracted amounts and the market price at that time is less than the contracted price, the Company would be obligated
under the terms of the agreements to reimburse an amount equal to the difference between the contracted amount and the amount
actually purchased, multiplied by the difference between the contract price and a price designated in the contract (approximates
spot price).



Other purchase commitments





In April
2015, Orchids announced projects to build a new integrated paper converting facility in Barnwell, South Carolina. This project
has a total estimated cost of approximately $150.0 million. As part of this project, the Company entered into significant purchase
orders for two converting lines and construction of a paper machine. As of December 31, 2016, obligations under purchase orders
related to the Barnwell projects totaled approximately $9.0 million.



Note 5—Inventories



Inventories at December
31 were:



|                            |  | 2016           |        |   | 2015 |  
|--------------------------- |  | -------------- | ------ | - | ---- | -
|                            |  | (In thousands) |       
|Raw materials               |  | $              | 4,855  |   |      | $
|Bulk paper rolls            |  |                | 3,765  |   |      |  
|Converted finished goods    |  |                | 9,859  |   |      |  
|Inventory valuation reserve |  |                | (65    | ) |      |  
|                            |  | $              | 18,414 |   |      | $



19







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 6—Property, Plant and Equipment



The principal categories
and estimated useful lives of property, plant and equipment at December 31 were:



|                                                          |  |                |         |  |      |   |         | Estimated | 
|--------------------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | --------- | 
|                                                          |  |                |         |  |      |   |         | Useful    | 
|                                                          |  | 2016           |         |  | 2015 |   |         | Lives     | 
|                                                          |  | (In thousands) |         |  |      |  
|Land                                                      |  | $              | 1,316   |  |      | $ | 1,316   |           | 
|Buildings and improvements                                |  |                | 37,356  |  |      |   | 24,321  |           | 
|Machinery and equipment                                   |  |                | 186,863 |  |      |   | 141,811 |           | 
|Vehicles                                                  |  |                | 1,830   |  |      |   | 1,796   |           | 
|Nondepreciable machinery and equipment (parts and spares) |  |                | 11,976  |  |      |   | 10,250  |           | 
|Construction-in-process                                   |  |                | 81,101  |  |      |   | 53,431  |           | 
|                                                          |  | $              | 320,442 |  |      | $ | 232,925 |           | 



In January 2016, the
Company received $1.9 million of proceeds from an economic incentive related to the construction of the South Carolina facility.
While there currently are no US GAAP pronouncements relating to the accounting treatment of government grants, the Company recorded
these proceeds as a reduction in the property, plant and equipment related to this project in accordance with non-authoritative
guidance issued by the American Institute of Certified Public Accountants, which recommended that grants related to developing
property be recognized over the useful lives of the assets by recognizing receipt as the related asset is depreciated.



The Company capitalizes
interest for major capital projects. Capitalized interest is added to the cost of the underlying assets and is depreciated over
the useful lives of those assets. Interest expense for the years ended December 31, 2016, 2015 and 2014 excludes $1.7 million,
$0.5 million and $0.3 million, respectively, of interest capitalized on significant projects during the year.



For the year ended
December 31, 2014, other (income) expense includes $.04 million of expenses related to the demolition of two paper machines in
the Company’s paper mill, which were replaced with a new paper machine.



Note 7—Long-Term Debt and Revolving Line of Credit



In June 2015, the
Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”), with U.S. Bank National
Association (“U.S. Bank”). Additionally, on January 19, 2017, the Company entered into Amendment No. 3 (“the
Amendment”) which increases the total loan commitment, modifies the pricing grid applicable to interest rates and the unused
commitment fee, amends the financial covenant related to the maintenance of a maximum total leverage ratio by increasing the permitted
total leverage ratio for fiscal quarters ending on or prior to March 31, 2018, and amends the terms of the draw loan to provide
for additional advance amounts available to the Company for the purposes of acquiring or improving real estate. The terms of the
Credit Agreement, as amended, consist of the following:



| | · | a $25.0 million
                                         revolving credit line due June 2020;
| | - | ---------------------------------------------------------------------------------------------



| | · | a $47.3 million
                                         Term Loan with a 5-year term due June 2020 and payable in quarterly installments of $675,000
                                         through June 2016 and $1.0 million per quarter thereafter;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | · | a
                                         $115.0 million delayed draw term loan with a 2-year draw period due June 2020 and payable
                                         in quarterly installments beginning in September 2017 of 1.5% of the June 30, 2017 outstanding
                                         balance. In December 2015, in connection with the NMTC transaction (see Note 12), the
                                         maximum borrowing capacity under the delayed draw term loan was reduced from $115.0 million
                                         to $99.6 million and in January 2017, under the terms of the Amendment, the maximum borrowing
                                         capacity was increased to $108.5 million; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 7—Long-Term Debt and Revolving Line of
Credit (Continued)



| | · | an
                                         accordion feature allowing the revolving credit line and/or delayed draw commitment under
                                         the Credit Agreement to be increased by up to $50.0 million at any time on or before
                                         the expiration date of the Credit Agreement.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Proceeds from the
delayed draw term loan must be utilized solely to finance the purchase and installation of new equipment and construction at the
Company’s Barnwell, South Carolina facility.



Under the terms of
the Credit Agreement, as amended, amounts outstanding will bear interest at a variable rate of LIBOR plus a specified margin,
or the base rate plus a specified margin, at the Company’s option. The specified margin is based on the Company’s
quarterly Leverage Ratio, as defined in the Credit Agreement, as amended. The following table outlines the specified margins and
the commitment fees payable under the Credit Agreement:



|                                                 |  | LIBOR  |      |   | Base   |  |      | Commitment | 
|------------------------------------------------ |  | ------ | ---- | - | ------ |  | ---- | ---------- | 
|Leverage Ratio                                   |  | Margin |      |   | Margin |  |      | Fee        | 
|Less than 1.00                                   |  |        | 1.25 | % |        |  | 0.00 | %          | 
|Greater than or equal to 1.00 but less than 2.00 |  |        | 1.50 | % |        |  | 0.00 | %          | 
|Greater than or equal to 2.00 but less than 3.00 |  |        | 1.75 | % |        |  | 0.00 | %          | 
|Greater than or equal to 3.00 but less than 3.50 |  |        | 2.25 | % |        |  | 0.00 | %          | 
|Greater than or equal to 3.50 but less than 4.00 |  |        | 2.50 | % |        |  | 0.25 | %          | 
|Greater than or equal to 4.00 but less than 4.50 |  |        | 3.00 | % |        |  | 0.75 | %          | 
|Greater than or equal to 4.50 but less than 5.00 |  |        | 3.50 | % |        |  | 1.25 | %          | 
|Greater than or equal to 5.00                    |  |        | 4.00 | % |        |  | 1.75 | %          | 



Additionally, in connection
with the NMTC transaction discussed in Note 12, the Company entered into an $11.1 million term loan with U.S. Bank. This loan
bears interest at a fixed rate of 4.4% and matures on December 29, 2022. The loan requires quarterly payments of principal and
interest of approximately $255,000, beginning in March 2016, with a balloon payment due on the maturity date.



As of December 31,
2016, the Company’s weighted-average interest rate was 2.64%.



Long-term debt at
December 31 consists of:



|                                                                                                                                                                     |  | 2016           |         |   | 2015 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | -
|                                                                                                                                                                     |  | (In thousands) |        
|Revolving line of credit, maturing on June 25, 2020                                                                                                                  |  | $              | 16,447  |   |      | $
|Delayed draw term loan, maturing on June 25, 2020                                                                                                                    |  |                | 72,342  |   |      |  
|Term loan, maturing on June 25, 2020, due in quarterly
    installments of $675,000 for the first year and $1,000,000 thereafter, excluding interest paid separately |  |                | 42,600  |   |      |  
|Term loan, maturing on December 29, 2022, due in quarterly
    installments of $255,006, including interest                                                          |  |                | 10,577  |   |      |  
|Less: unamortized debt issuance costs                                                                                                                                |  |                | (1,249  | ) |      |  
|                                                                                                                                                                     |  |                | 140,717 |   |      |  
|Less current portion                                                                                                                                                 |  |                | 6,728   |   |      |  
|                                                                                                                                                                     |  | $              | 133,989 |   |      | $



21







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 7—Long-Term Debt and Revolving Line of
Credit (Continued)



Unamortized debt issuance
costs at December 31 consist of:



|                                                  |  | 2016           |       |  | 2015 |  
|------------------------------------------------- |  | -------------- | ----- |  | ---- | -
|                                                  |  | (In thousands) |      
|Revolving line of credit                          |  | $              | 229   |  |      | $
|Delayed draw term loan, maturing on June 25, 2020 |  |                | 283   |  |      |  
|Term loan, maturing on June 25, 2020              |  |                | 146   |  |      |  
|Term loan, maturing on December 29, 2022          |  |                | 591   |  |      |  
|                                                  |  | $              | 1,249 |  |      | $



The annual maturities
of long-term debt at December 31, 2016, are as follows:



|           |  | Annual         |        
|---------- |  | -------------- | -------
|           |  | Payment        |        
|Year       |  | Amount         |        
|           |  | (in thousands) |        
|2017       |  | $              | 6,728  
|2018       |  |                | 8,923  
|2019       |  |                | 8,950  
|2020       |  |                | 109,173
|2021       |  |                | 666    
|after 2021 |  |                | 7,526  
|           |  | $              | 141,966



The amount available
under the revolving credit line may be reduced in the event that the Company's borrowing base, which is based upon qualified receivables
and qualified inventory is less than $25.0 million. As of December 31, 2016, the Company’s borrowing base was $15.0 million,
including $6.1 million of eligible accounts receivable and $8.9 million of eligible inventory.



Obligations under
the Credit Agreement and the NMTC loan are secured by substantially all of the Company's assets. The Credit Agreement contains
representations and warranties, and affirmative and negative covenants customary for financings of this type, including, but not
limited to, limitations on additional borrowings, additional investments and asset sales. The financial covenants, which are tested
as of the end of each fiscal quarter, require the Company to maintain the following specific ratios: fixed charge coverage (minimum
of 1.20 to 1.0) and leverage (maximum of 5.0 to 1.0 on December 31, 2016; maximum of 5.75 to 1.0 on March 31, 2017; maximum of
5.5 to 1.0 on June 30, 2017, maximum of 4.5 to 1.0 on September 30, 2017, maximum of 4.0 to 1.0 on December 31, 2017, and maximum
of 3.5 to 1.0 on March 31, 2018 and thereafter). The Company has the right to prepay borrowings under the Credit Agreement at
any time without penalty.



The Company’s
leverage ratio at December 31, 2016 was 4.26, while the fixed charge coverage ratio was 1.86.



Note 8—Income Taxes



The Company is subject
to income tax in the United States and Mexico. Income from continuing operations before taxes subject to United States and foreign
income taxes for each of the three years ended December 31, were as follows:



22







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 8—Income Taxes (Continued)



|                                 |  | Year ended December
    31, |       
|-------------------------------- |  | --------------------------- | ------
|                                 |  | 2016                        |       
|                                 |  | (in thousands)              |       
|United States                    |  | $                           | 18,280
|Foreign                          |  |                             | (1,058
|Total income before income taxes |  | $                           | 17,222



The components of
the provision for income taxes for each of the three years ended December 31, were as follows:



|                                                |  | Year ended December
    31, |       
|----------------------------------------------- |  | --------------------------- | ------
|                                                |  | 2016                        |       
|                                                |  | (in thousands)              |       
|Current:                                        |  |                             |       
|U.S. Federal                                    |  | $                           | (2,934
|U.S. State                                      |  |                             | (352  
|Foreign                                         |  |                             | 127   
|                                                |  |                             | (3,159
|Deferred:                                       |  |                             |       
|U.S. Federal                                    |  |                             | 7,906 
|U.S. State                                      |  |                             | (568  
|Foreign                                         |  |                             | 232   
|                                                |  |                             | 7,570 
|Total provision for (benefit from) income taxes |  | $                           | 4,411 



Significant components
of the Company's deferred income tax assets and (liabilities) at December 31 were:



|                                            |  | 2016           |         |   | 2015 |  
|------------------------------------------- |  | -------------- | ------- | - | ---- | -
|                                            |  | (in thousands) |        
|Deferred income taxes                       |  |                |         |   |      |  
|Inventories                                 |  | $              | 1,576   |   |      | $
|Prepaid expenses                            |  |                | (209    | ) |      |  
|Accrued vacation                            |  |                | 70      |   |      |  
|Plant and equipment                         |  |                | (34,114 | ) |      |  
|State investment tax credit carryforward    |  |                | 7,721   |   |      |  
|State net operating loss carryforward       |  |                | 352     |   |      |  
|Stock-based compensation                    |  |                | 1,375   |   |      |  
|State income taxes - temporary differences  |  |                | (4,738  | ) |      |  
|Indian employment and other federal credits |  |                | 766     |   |      |  
|Intangible assets                           |  |                | (273    | ) |      |  
|Other                                       |  |                | 140     |   |      |  
|Deferred income tax liabilities, net        |  | $              | (27,334 | ) |      | $



23







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 8—Income Taxes (Continued)



The following table
summarizes the differences between the U.S. federal statutory rate and the Company's effective tax rate for financial statement
purposes:



|                                                      |  | Year ended December
    31, |      
|----------------------------------------------------- |  | --------------------------- | -----
|                                                      |  | 2016                        |      
|Statutory tax rate                                    |  |                             | 35.0 
|State income taxes, net of U.S. federal tax benefit   |  |                             | 4.6  
|Indian employment and other federal credits           |  |                             | (2.1 
|Employee and board stock compensation                 |  |                             | -    
|State investment tax credits                          |  |                             | (10.0
|Section 199 manufacturing deduction                   |  |                             | -    
|Change in estimates                                   |  |                             | (1.8 
|Foreign income taxes, net of U.S. federal tax credits |  |                             | (1.1 
|Acquisition costs                                     |  |                             | -    
|Other                                                 |  |                             | 1.0  
|                                                      |  |                             | 25.6 



For the year ended
December 31, 2016, the effective tax rate was lower than the statutory rate primarily due to South Carolina Investment Tax Credits
(“SCITC”) and Oklahoma Investment Tax Credits (“OITC”) associated with investments in the Company’s
manufacturing operations in Barnwell, South Carolina and Pryor, Oklahoma, respectively, and federal credits, including Indian
Employment Credits (“IEC”), foreign tax credits and research and development credits.



For the year ended
December 31, 2015, the effective tax rate was lower than the statutory rate primarily due to OITC associated with investments
in the Company’s manufacturing operations in Pryor, Oklahoma, manufacturing tax deductions and IEC.



For the year ended
December 31, 2014, the effective tax rate was lower than the statutory rate primarily due to a change in estimates recognized
in 2014, as the Company believes certain deferred tax liabilities will be recognized at amounts and rates other than previously
estimated. The effective tax rate for 2014 was also lowered by manufacturing tax deductions and OITC associated with investments
in the Company’s manufacturing operations in Pryor, Oklahoma. Additionally, in 2014, Orchids began recording current and
deferred income taxes in the state of California and the country of Mexico due to impacts of the Fabrica Transaction (see Note
2). Taxes related to California increased the Company’s effective tax rate by approximately 3.1%. The Company’s earnings
in Mexico are subject to the country’s 30% income tax rate. The net effect of foreign taxes was not material to the Company’s
effective tax rate due to U.S. income tax credits related to foreign-sourced income.



The Company has significant
carryforwards for the State of Oklahoma which include an OITC of $3.7 million primarily associated with the Company's $36 million
investment in a new paper machine in 2006, $20 million investment in a new converting line in 2010, $26 million investment in
another new paper machine and $8.3 million of assets placed in service for a new converting line in 2015, and approximately $15
million invested in 2016, including an additional $6.5 million of assets placed in service for the new converting line and investments
in tissue liberation and heating and air upgrades. The Company believes that its future state taxable income will be sufficient
to allow realization before the OITC expires in varying amounts from 2028 through 2036. Accordingly, deferred tax assets have
been recognized for this credit.



The Company has significant
carryforwards for the State of South Carolina, which include a SCITC of approximately $0.4 million, primarily associated with
the Company's $28 million investment in new converting lines. The Company believes that its future state taxable income will be
sufficient to allow realization before the SCITC expires in ten years. Accordingly, deferred tax assets have been recognized for
this credit.



24







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 8—Income Taxes (Continued)



The U.S. tax code
requires that certain types of income produced by non-U.S. subsidiaries be currently taxed without regard to actual distribution
(Subpart F income). Income earned by Orchids Mexico meets the definition of Subpart F income. As a result, U.S. current and deferred
federal income tax has been recorded on these earnings. Upon remittance of these earnings, no significant incremental U.S. tax
is expected.



Based upon a review
of its income tax filing positions, the Company believes that its positions would be sustained upon an audit and does not anticipate
any adjustments that would result in a material change to its financial position. However, the 2014 Tax return has been selected
for audit by the Internal Revenue Service. The Company recognizes interest related to income taxes as interest expense and penalties
as selling, general and administrative expenses. The tax years 2013 through 2016 remain open to examination by major taxing jurisdictions
in which the Company files income tax returns.



Note 9—Earnings per Share



During the first quarter
of 2013, the Company granted restricted stock to certain employees. These awards include a nonforfeitable right to receive dividends
and therefore are considered to participate in undistributed earnings with common shareholders. Therefore, the Company calculates
basic and diluted earnings per common share using the two-class method, under which net earnings are allocated to each class of
common stock and participating security. The computation of basic and diluted net income per common share for the years ended
December 31, 2016, 2015 and 2014, is as follows:



|                                                                            |  | Year ended December
    31,                     |           
|--------------------------------------------------------------------------- |  | ----------------------------------------------- | ----------
|                                                                            |  | 2016                                            |           
|                                                                            |  | (In thousands, except share and per share data) |           
|Net income                                                                  |  | $                                               | 12,811    
|Less: distributed earnings allocable to participating securities            |  |                                                 | -         
|Less: undistributed earnings allocable to participating securities          |  |                                                 | -         
|Distributed and undistributed
    earnings allocable to common shareholders |  | $                                               | 12,811    
|                                                                            |  |                                                 |           
|Weighted average shares outstanding                                         |  |                                                 | 10,286,373
|Effect of stock options                                                     |  |                                                 | 62,901    
|Weighted average shares outstanding - assuming dilution                     |  |                                                 | 10,349,274
|Net income per common share:                                                |  |                                                 |           
|Basic                                                                       |  | $                                               | 1.25      
|Diluted                                                                     |  | $                                               | 1.24      
|                                                                            |  |                                                 |           
|Stock options not considered above because they were anti-dilutive          |  |                                                 | 614,250   



Note 10—Stock Incentives





In April
2014, the Orchids Paper Products Company 2014 Stock Incentive Plan (the “2014 Plan”) was approved. The 2014 Plan replaced
the Orchids Paper Products Company 2005 Stock Incentive Plan (the “2005 Plan”) and provides for the granting of stock
options and other stock based awards to employees and Board members selected by the Board's compensation committee. The Company's
policy is to issue shares of remaining authorized common stock to satisfy option exercises under the 2014 Plan. A total of 400,000
shares may be issued pursuant to the 2014 Plan. As of December 31, 2016, there were 164,200 shares available for issuance under
the 2014 Plan. The exercise price of each option is generally equal to the arithmetic mean of the high and low sales price per
share of the Company's common stock on the grant date. Options granted to Board members under the Plan generally vest immediately.
Options granted to employees generally vest over a service period of zero to five years or are market-based and vest when the share
price of the Company’s common stock closes at or above a certain percentage of the purchase price of the option for three
consecutive business days. Options granted with market-based vesting expire if they remain unvested five years after the grant
date. Options granted under the 2014 Plan have a 10-year life.



25







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



Stock options with time-based vesting conditions



The Company uses the
Black-Scholes option valuation model to estimate the grant date fair value of stock options issued with time-based vesting conditions,
as this model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are
fully transferable. Option valuation models require the input of highly subjective assumptions including the expected stock price
volatility. Estimated volatility is calculated based on actual historical volatility of the Company's common stock from the Company's
initial public offering date to the grant date. The Company's dividend yield assumption is based on the expected dividend yield
as of the grant date. Expected life is calculated based on the average of the service period and the contractual term of the option,
using the simplified method for "plain vanilla" options, due to limited available exercise information. The Company
expenses the cost of these options granted over the vesting period of the option based on the grant-date fair value of the award.



The following table
details the options granted to certain members of the board of directors and management that were valued using the Black-Scholes
valuation model and the weighted-average assumptions used in the Black-Scholes option valuation model for those grants during
2014, 2015 and 2016:



|         |  |        |        |  |          |   |       | Grant |  |   |           |  |  |            |      |   |          |  |    |            | 
|-------- |  | ------ | ------ |  | -------- | - | ----- | ----- |  | - | --------- |  |  | ---------- | ---- | - | -------- |  | -- | ---------- | 
|         |  | Number |        |  |          |   |       | Date  |  |   | Risk-Free |  |  |            |      |   |          |  |    | Expected   | 
|Grant    |  | of     |        |  | Exercise |   |       | Fair  |  |   | Interest  |  |  | Estimated  |      |   | Dividend |  |    | Life       | 
|Date     |  | Shares |        |  | Price    |   |       | Value |  |   | Rate      |  |  | Volatility |      |   | Yield    |  |    | (in years) | 
|May 2014 |  |        | 35,000 |  |          | $ | 29.65 |       |  | $ | 7.50      |  |  |            | 2.62 | % |          |  | 41 | %          | 
|Jun 2014 |  |        | 5,000  |  |          |   | 30.09 |       |  |   | 7.67      |  |  |            | 2.63 |   |          |  | 41 |            | 
|May 2015 |  |        | 40,000 |  |          |   | 22.49 |       |  |   | 4.64      |  |  |            | 2.13 |   |          |  | 40 |            | 
|Nov 2015 |  |        | 68,000 |  |          |   | 29.58 |       |  |   | 7.37      |  |  |            | 2.32 |   |          |  | 40 |            | 
|Jan 2016 |  |        | 5,000  |  |          |   | 27.77 |       |  |   | 6.56      |  |  |            | 2.00 |   |          |  | 40 |            | 
|May 2016 |  |        | 40,000 |  |          |   | 31.33 |       |  |   | 7.57      |  |  |            | 1.74 |   |          |  | 40 |            | 
|Sep 2016 |  |        | 20,000 |  |          |   | 28.48 |       |  |   | 4.53      |  |  |            | 1.36 |   |          |  | 30 |            | 



In 2015, 3,750 of
time-based options granted in 2005 expired unexercised.



Stock options with market-based vesting conditions



The Company uses a
Monte Carlo option valuation model to estimate the grant date fair value of stock options issued with market-based vesting conditions,
as these options include a market condition. Option valuation models require the input of highly subjective assumptions including
the expected stock price volatility, dividend yield and expected life of the option. Estimated volatility is calculated based
on a mix of historical and implied volatility during the expected life of the options. Historical volatility is considered since
the Company’s initial public offering and implied volatility is based on the publicly traded options of a three-company
peer group within the paper industry. The Company's dividend yield assumption is based on the Company’s average historical
dividend yield and current dividend yield as of the grant date. Expected life is calculated based on the average of the service
period and the contractual term of the option, using the simplified method for "plain vanilla" options. The Company
expenses the cost of these options granted over the implicit, or derived, service period of the option based on the completed
Monte Carlo models.



26







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



During 2014 and 2015,
the Board of Directors granted options to purchase 145,000 and 28,600 shares, respectively, of the Company’s common stock
to certain members of management. These options will become exercisable in four equal tranches, if at all, if and when the share
price of the Company’s common stock closes at or above a certain percentage of the purchase price of the option for three
consecutive business days, in accordance with the following vesting schedule:



|Share price required to achieve vesting |  | 2014 options |       |  | 2015 options |  
|--------------------------------------- |  | ------------ | ----- |  | ------------ | -
|Tranche 1                               |  | $            | 34.79 |  |              | $
|Tranche 2                               |  |              | 42.35 |  |              |  
|Tranche 3                               |  |              | 51.43 |  |              |  
|Tranche 4                               |  |              | 60.50 |  |              |  



Any unvested
portion of the options shall expire five years from the date of grant and the options shall terminate ten years after the date
of grant. The following table details the options granted to certain members of management that were valued using the Monte Carlo
valuation model and the assumptions used in the valuation model for those grants during 2014 and 2015:









|                       |  |           |        |  |                 |   |       | Grant       |  |   |                |  |  |                            |      |   |                  |  |    |                  |  |  | Derived                 |  
|---------------------- |  | --------- | ------ |  | --------------- | - | ----- | ----------- |  | - | -------------- |  |  | -------------------------- | ---- | - | ---------------- |  | -- | ---------------- |  |  | ----------------------- | -
|                       |  | Number    |        |  |                 |   |       | Date        |  |   | Risk-Free      |  |  |                            |      |   |                  |  |    | Expected         |  |  | Service                 |  
|Grant Date             |  | of
Shares |        |  | Exercise  Price |   |       | Fair  Value |  |   | Interest  Rate |  |  | Estimated  
    Volatility |      |   | Dividend   Yield |  |    | Life  (in years) |  |  | Period   (in
    years) |  
|Jan 2014    -Tranche 1 |  |           | 10,000 |  |                 | $ | 31.13 |             |  | $ | 5.64           |  |  |                            | 1.98 | % |                  |  | 31 | %                |  |  | 4.50                    | %
|Jan 2014    -Tranche 2 |  |           | 10,000 |  |                 |   | 31.13 |             |  |   | 5.46           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.50                    |  
|Jan 2014    -Tranche 3 |  |           | 10,000 |  |                 |   | 31.13 |             |  |   | 5.03           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.50                    |  
|Jan 2014    -Tranche 4 |  |           | 10,000 |  |                 |   | 31.13 |             |  |   | 4.27           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.50                    |  
|Feb 2014    -Tranche 1 |  |           | 25,000 |  |                 |   | 30.88 |             |  |   | 5.51           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.60                    |  
|Feb 2014    -Tranche 2 |  |           | 25,000 |  |                 |   | 30.88 |             |  |   | 5.35           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.60                    |  
|Feb 2014    -Tranche 3 |  |           | 25,000 |  |                 |   | 30.88 |             |  |   | 4.88           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.60                    |  
|Feb 2014    -Tranche 4 |  |           | 25,000 |  |                 |   | 30.88 |             |  |   | 4.15           |  |  |                            | 1.98 |   |                  |  | 31 |                  |  |  | 4.60                    |  
|May 2014  -Tranche 1   |  |           | 1,250  |  |                 |   | 28.19 |             |  |   | 5.06           |  |  |                            | 2.03 |   |                  |  | 31 |                  |  |  | 4.70                    |  
|May 2014   -Tranche 2  |  |           | 1,250  |  |                 |   | 28.19 |             |  |   | 4.74           |  |  |                            | 2.03 |   |                  |  | 31 |                  |  |  | 4.70                    |  
|May 2014   -Tranche 3  |  |           | 1,250  |  |                 |   | 28.19 |             |  |   | 4.02           |  |  |                            | 2.03 |   |                  |  | 31 |                  |  |  | 4.70                    |  
|May 2014  -Tranche 4   |  |           | 1,250  |  |                 |   | 28.19 |             |  |   | 3.29           |  |  |                            | 2.03 |   |                  |  | 31 |                  |  |  | 4.70                    |  
|Sep 2015    -Tranche 1 |  |           | 7,150  |  |                 |   | 25.24 |             |  |   | 4.44           |  |  |                            | 1.82 |   |                  |  | 34 |                  |  |  | 5.20                    |  
|Sep 2015    -Tranche 2 |  |           | 7,150  |  |                 |   | 25.24 |             |  |   | 3.92           |  |  |                            | 1.82 |   |                  |  | 34 |                  |  |  | 5.20                    |  
|Sep 2015    -Tranche 3 |  |           | 7,150  |  |                 |   | 25.24 |             |  |   | 3.11           |  |  |                            | 1.82 |   |                  |  | 34 |                  |  |  | 5.20                    |  
|Sep 2015    -Tranche 4 |  |           | 7,150  |  |                 |   | 25.24 |             |  |   | 2.36           |  |  |                            | 1.82 |   |                  |  | 34 |                  |  |  | 5.20                    |  





In 2014, none of these
options vested, as the share price of the Company’s common stock did not reach any of the share prices required for vesting.
Additionally, 25,000 options granted in January 2014 were forfeited when an employee left the Company in 2014. In 2015, Tranche
1 of the options granted in September 2015, or 7,150 options, vested when the share price of the Company’s common stock
closed above $29.56 for three consecutive business days. Additionally, 25,000 options granted in February 2014 and 5,000 options
granted in May 2014 were forfeited when employees left the Company in 2015. In 2016, Tranche 1 of the options granted in January
2014, or 3,750 options, and Tranche 1 of the options granted in February 2014, or 18,750 options, vested when the share price
of the Company’s common stock closed above $34.79 for three consecutive business days. Additionally, 18,750 options granted
in February 2014 and 1,800 options granted in September 2015 were forfeited when employees left the Company in 2016.



27







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



Stock options issued outside of the 2014 Plan



In April 2014, the
Company’s stockholders voted to approve the options granted to Mr. Jeffrey S. Schoen, the Company’s President and
Chief Executive Officer, on November 8, 2013. Upon his appointment as an officer of the Company, Mr. Schoen was granted an option
to purchase up to 400,000 shares of the common stock of the Company at a purchase price of $30.25 per share. The option will become
exercisable, if at all, if and when the share price of the Company’s common stock closes at or above a certain percentage
of the purchase price of the option for three consecutive business days, in accordance with the following vesting schedule:



|Share price closes at or above the
    following  percentage of the option purchase price of $30.25 |  | Number of shares that
    become vested |        
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------- | -------
|115% (share price $34.79)                                                                           |  |                                         | 100,000
|140% (share price $42.35)                                                                           |  |                                         | 100,000
|170% (share price $51.43)                                                                           |  |                                         | 100,000
|200% (share price $60.50)                                                                           |  |                                         | 100,000



These options were
granted outside of the 2005 Plan and the 2014 Plan. Any unvested portion of the option shall expire five years from the date of
grant and the option shall terminate ten years after the date of grant. The Company used a Monte Carlo option valuation model
to estimate the grant date fair value of each tranche of 100,000 options, as they include a market condition. Assumptions used
in the valuation model were the same as those for the stock options with market-based vesting conditions issued to employees,
which are noted above. The Company expenses the cost of these options granted over the implicit service period of the option based
on the completed Monte Carlo models. The following table details the assumption used in the valuation model for the options granted
to Mr. Schoen:



|          |  |        |         |  |          |   |       | Grant |  |   |           |  |  |            |      |   |          |  |    |            |  |  | Derived    |  
|--------- |  | ------ | ------- |  | -------- | - | ----- | ----- |  | - | --------- |  |  | ---------- | ---- | - | -------- |  | -- | ---------- |  |  | ---------- | -
|          |  | Number |         |  |          |   |       | Date  |  |   | Risk-Free |  |  |            |      |   |          |  |    | Expected   |  |  | Service    |  
|          |  | of     |         |  | Exercise |   |       | Fair  |  |   | Interest  |  |  | Estimated  |      |   | Dividend |  |    | Life       |  |  | Period     |  
|          |  | Shares |         |  | Price    |   |       | Value |  |   | Rate      |  |  | Volatility |      |   | Yield    |  |    | (in years) |  |  | (in years) |  
|Tranche 1 |  |        | 100,000 |  |          | $ | 30.25 |       |  | $ | 5.18      |  |  |            | 2.10 | % |          |  | 30 | %          |  |  | 4.60       | %
|Tranche 2 |  |        | 100,000 |  |          | $ | 30.25 |       |  |   | 5.04      |  |  |            | 2.10 |   |          |  | 30 |            |  |  | 4.60       |  
|Tranche 3 |  |        | 100,000 |  |          | $ | 30.25 |       |  |   | 4.31      |  |  |            | 2.10 |   |          |  | 30 |            |  |  | 4.60       |  
|Tranche 4 |  |        | 100,000 |  |          | $ | 30.25 |       |  |   | 3.50      |  |  |            | 2.10 |   |          |  | 30 |            |  |  | 4.60       |  



In 2016,
Tranche 1 of the options granted to Mr. Schoen, or 100,000 options, vested when the share price of the Company’s common stock
closed above $34.79 for three consecutive business days.



Total option expense



The Company recognized
the following expenses related to all options granted during 2016, 2015 and 2014 under the 2005 Plan, the 2014 Plan and the Schoen
options:



|                                                    |  | Year ended December
    31, |    
|--------------------------------------------------- |  | --------------------------- | ---
|                                                    |  | 2016                        |    
|                                                    |  | (In thousands)              |    
|Time-based vesting options                          |  | $                           | 430
|Market-based vesting options                        |  |                             | 133
|Total compensation expense related to stock options |  | $                           | 563



28







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



Summary of option activity



The following tables
summarize activity related to options granted under the 2005 Plan, the 2014 Plan and the Schoen options:





|                                 |  |        |         |   |          |   |       | Weighted    |  |  |                                                     |  |  |                |     
|-------------------------------- |  | ------ | ------- | - | -------- | - | ----- | ----------- |  |  | --------------------------------------------------- |  |  | -------------- | ----
|                                 |  |        |         |   | Weighted |   |       | Average     |  |  | Weighted                                            |  |  | Aggregate      |     
|                                 |  |        |         |   | Average  |   |       | Remaining   |  |  | Average                                             |  |  | Intrinsic      |     
|                                 |  |        |         |   | Exercise |   |       | Contractual |  |  | Grant Date                                          |  |  | Value          |     
|                                 |  | Number |         |   | Price    |   |       | Life        |  |  | Fair Value                                          |  |  | (in thousands) |     
|Balance, December 31, 2013       |  |        | 180,000 |   |          | $ | 16.46 |             |  |  |                                                     |  |  |                |     
|Granted                          |  |        | 585,000 |   |          |   | 30.36 |             |  |  |                                                     |  |  | $              | 4.83
|Exercised                        |  |        | (5,750  | ) |          |   | 13.80 |             |  |  |                                                     |  |  |                |     
|Forfeited                        |  |        | (25,000 | ) |          |   | 31.13 |             |  |  |                                                     |  |  |                |     
|Balance, December 31, 2014       |  |        | 734,250 |   |          |   | 27.06 |             |  |  |                                                     |  |  |                |     
|Granted                          |  |        | 136,600 |   |          |   | 26.59 |             |  |  |                                                     |  |  | $              | 5.75
|Exercised                        |  |        | (11,250 | ) |          |   | 18.64 |             |  |  |                                                     |  |  |                |     
|Forfeited/Expired                |  |        | (33,750 | ) |          |   | 27.78 |             |  |  |                                                     |  |  |                |     
|Balance, December 31, 2015       |  |        | 825,850 |   |          |   | 27.07 |             |  |  |                                                     |  |  |                |     
|Granted                          |  |        | 65,000  |   |          |   | 30.18 |             |  |  |                                                     |  |  | $              | 6.56
|Exercised                        |  |        | (28,000 | ) |          |   | 11.22 |             |  |  |                                                     |  |  |                |     
|Forfeited                        |  |        | (24,550 | ) |          |   | 30.25 |             |  |  |                                                     |  |  |                |     
|Balance, December 31, 2016       |  |        | 838,300 |   |          |   | 27.74 |             |  |  | 7.25
                                         years |  |  |                |     
|                                 |  |        |         |   |          |   |       |             |  |  |                                                     |  |  |                |     
|Exercisable at December 31, 2016 |  |        | 412,100 |   |          | $ | 25.46 |             |  |  | 6.92
                                         years |  |  |                |     









The following table summarizes options
outstanding and exercisable under the 2005 Plan, the 2014 Plan and the Schoen options as of December 31, 2016:



|                     |  | Options Outstanding |         |  | Options Exercisable |  
|-------------------- |  | ------------------- | ------- |  | ------------------- | -
|                     |  |                     |         |  |                     |  
|                     |  |                     |         |  | Weighted            |  
|                     |  |                     |         |  | Average             |  
|                     |  |                     |         |  | Exercise            |  
|Exercise price range |  | Number              |         |  | Price               |  
|$7.48 - $8.58        |  |                     | 7,500   |  |                     | $
|$11.95 - $17.85      |  |                     | 81,000  |  |                     | $
|$21.70 - $31.33      |  |                     | 749,800 |  |                     | $
|                     |  |                     | 838,300 |  |                     |  



29







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



The following table summarizes information about stock
option vesting during the years ended December 31:



|     |  | Stock Options |        
|---- |  | ------------- | -------
|     |  | Vested During |        
|     |  | the Year      |        
|2016 |  |               | 180,100
|2015 |  |               | 61,750 
|2014 |  |               | 46,334 



As of December 31,
2016, there was $359,000 of unrecognized compensation expense related to non-vested stock options with a time-based vesting condition
for options granted in 2016 and 2015. This cost is expected to be recognized on a straight-line basis over a weighted average
period of 3.2 years. At December 31, 2016, unrecognized compensation expense related to non-vested stock options with a market-based
vesting condition for options granted in 2015 was immaterial.





During the years ended December 31, 2016, 2015
and 2014, the Company received $314,000, $210,000, and $79,000, respectively, in proceeds from the exercise of stock options.
The Company realized $211,000, $23,000, and $16,000 of tax benefits related to stock option exercises during the years ended
December 31, 2016, 2015 and 2014, respectively. Excess tax benefits related to stock option exercises are recorded to
additional-paid in capital ("APIC pool") when realized and may be used to offset future tax deficiencies. During
the years ended December 31, 2016, 2015 and 2014, the Company recorded excess tax (deficiencies) benefits of $171,000,
($6,000), and $20,000, respectively. As of December 31, 2016, the Company’s APIC pool was $2.0 million.





Restricted stock



In February 2013,
the Company granted 16,000 shares of restricted stock to certain employees under the 2005 Plan. These awards were valued at the
arithmetic mean of the high and low market price of the Company's stock on the grant date, which was $21.695 per share, and vested
ratably over a three-year period beginning on the first anniversary of the grant date. The Company expenses the cost of restricted
stock granted over the vesting period of the shares based on the grant-date fair value of the award. The Company recognized expense
of $3,000, $44,000 and $51,000 during 2016, 2015 and 2014, respectively, related to the shares granted under the 2005 Plan.



The following tables
summarize activity related to unvested restricted stock granted under the 2005 Plan as of December 31, 2016 and for the year then
ended:



|                           |  |        |        |   | Weighted   |  
|-------------------------- |  | ------ | ------ | - | ---------- | -
|                           |  |        |        |   | Average    |  
|                           |  |        |        |   | Grant Date |  
|                           |  | Number |        |   | Fair Value |  
|Balance, December 31, 2015 |  |        | 2,000  |   |            | $
|Vested                     |  |        | (2,000 | ) |            |  
|Balance, December 31, 2016 |  |        | -      |   |            |  



30







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 10—Stock Incentives (Continued)



The following table summarizes information
about restricted stock vesting during the years ended December 31:



|     |  | Restricted Stock |      
|---- |  | ---------------- | -----
|     |  | Vested During    |      
|     |  | the Year         |      
|2016 |  |                  | 2,000
|2015 |  |                  | 2,333
|2014 |  |                  | 2,666



No shares of restricted stock were granted
in the years ending December 31, 2016, 2015 or 2014.



Note 11—Major Customers and Concentration
of Credit Risk



Major customers



The Company sells its paper production
in the form of parent rolls and converted products. Revenues from converted product sales and parent roll sales in the years ended
December 31, 2016, 2015 and 2014 were:



|                            |  | Year ended December
    31, |        
|--------------------------- |  | --------------------------- | -------
|                            |  | 2016                        |        
|                            |  | (In thousands)              |        
|Converted product net sales |  | $                           | 158,102
|Parent roll net sales       |  |                             | 6,392  
|Total net sales             |  | $                           | 164,494





Credit risk for the Company was concentrated
in the following customers who each comprised more than 10% of the Company's total sales during the years ended December 31, 2016,
2015 and 2014:



|                             |  | 2016 |    |   | 2015 |  |    | 2014 | 
|---------------------------- |  | ---- | -- | - | ---- |  | -- | ---- | 
|Converted product customer 1 |  |      | 36 | % |      |  | 34 | %    | 
|Converted product customer 2 |  |      | *  |   |      |  | 15 |      | 
|Converted product customer 3 |  |      | 14 |   |      |  | 12 |      | 
|Total percent of net sales   |  |      | 50 | % |      |  | 61 | %    | 



*Customer did not account for more
than 10% of sales during the period indicated.



At December 31, 2016 and 2015, the significant
customers accounted for the following amounts of the Company's accounts receivable (in thousands):



|                             |  | 2016 |       |  | 2015 | 
|---------------------------- |  | ---- | ----- |  | ---- | 
|Converted product customer 1 |  | $    | 3,703 |  |      | 
|Converted product customer 2 |  |      | *     |  |      | 
|Converted product customer 3 |  |      | 702   |  |      | 
|Total of accounts receivable |  | $    | 4,405 |  |      | 



*Customer did not account for more than 10% of sales during
the period indicated



31







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 11—Major Customers and Concentration
of Credit Risk (Continued)



No other customers
of the Company accounted for more than 10% of sales during these periods. The Company generally does not require collateral from
its customers and has not incurred any significant losses on uncollectible accounts receivable.



Paper supply agreement



On February 20, 2008,
the Company signed an exclusive supply agreement with Dixie Pulp and Paper, Inc. to supply all of its recycled fiber needs. This
agreement was effective beginning April 1, 2008 and carried an initial five-year term through April 1, 2013. However, the agreement
automatically renews for successive one-year periods unless either party gives 90 days' notice. As of the date of this report,
the Company has not received notice of intention not to renew the agreement nor has the Company provided such a notice to the
counterparty, and the agreement is in effect.



Cash in excess of insured limits



Much of the Company's
cash is maintained at financial institutions, which are insured by the Federal Deposit Insurance Corporation ("FDIC")
up to $250,000 per depositor at each financial institution. At times, balances may exceed these federally insured limits or may
be contained in foreign bank accounts, which are not insured by the FDIC. The Company has never experienced any losses related
to these accounts. At December 31, 2016, the Company had approximately $8.0 million of non-interest bearing cash balances in excess
of federally insured limits. Additionally, $1.8 million of the Company’s cash was in bank accounts in Mexico, which are
not insured by the FDIC.





Note 12—New Market Tax
Credit



In December 2015,
the Company received approximately $5.1 million in net proceeds from financing agreements related to capital expenditures at its
Barnwell, South Carolina facility. This financing arrangement was structured with a third party financial institution (the “NMTC
Investor”) associated with U.S. Bank, an investment fund, and two community development entities (the “CDEs”)
majority owned by the investment fund. This transaction was designed to qualify under the federal New Market Tax Credit (“NMTC”)
program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through this transaction, the Company has secured
low interest financing and the potential for future debt forgiveness related to the South Carolina facility. Upon closing of the
NMTC transaction, the Company provided an aggregate of approximately $11.1 million, which was borrowed from U.S. Bank, to the
investment fund, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0% per annum. This $11.1
million in proceeds plus $5.1 million of net capital from the NMTC Investor were contributed to and used by the CDEs to make loans
in the aggregate of $16.2 million to a subsidiary of the Company, Orchids Lessor SC, LLC (“Orchids Lessor”). These
loans bear interest at a fixed rate of 1.275%. Orchids Lessor is using the loan proceeds to partially fund $18.0 million of the
Company’s capital assets associated with the Barnwell facility. These capital assets will serve as collateral to the financing
arrangement. This transaction also includes a put/call feature whereby, at the end of a seven-year compliance period, we may be
obligated or entitled to repurchase the NMTC Investor’s interest in the investment fund. The value attributable to the put
price is nominal. Consequently, if exercised, the put could result in the forgiveness of the NMTC Investor’s interest in
the investment fund, and result in a net non-operating gain of up to $5.1 million. The call price will be valued at the net present
value of the cash flows of the lease inherent in the transaction.



32







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 12—New Market Tax Credit (Continued)



The NMTC Investor
is subject to 100% recapture of the New Market Tax Credits it receives for a period of seven years as provided in the Internal
Revenue Code and applicable U.S. Treasury regulations. The Company is required to be in compliance with various regulations and
contractual provisions that apply to the New Market Tax Credit arrangement. Noncompliance with applicable requirements could result
in the NMTC Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the NMTC
Investor for any loss or recapture of New Market Tax Credits related to the financing until such time as the recapture provisions
have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required
in connection with this financing arrangement.



The investment fund
and the community development entities are considered Variable Interest Entities (VIEs) and the Company is the primary beneficiary
of the VIEs. This conclusion was reached based on the following:



| | · | The
                                         ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC
                                         compliance—were all considered in the initial design and are not expected to significantly
                                         affect performance throughout the life of the VIE;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Contractual
                                         arrangements obligate the Company to comply with NMTC rules and regulations and provide
                                         various other guarantees to the NMTC Investor and community development entities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The NMTC Investor
                                         lacks a material interest in the underling economics of the project; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| | · | The Company
                                         is obligated to absorb losses of the VIEs.
| | - | -----------------------------------------------------------------------------------------------



Because the Company
is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets,
liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC transaction.



At December 31, 2016
and 2015, the NMTC Investor’s interest of $5.2 million and $5.1 million, respectively, is recorded in other long-term liabilities
on the consolidated balance sheet, while the outstanding balance of the amount borrowed from U.S. Bank to loan to the investment
fund of $10.0 and $11.1 million, respectively, is recorded in long-term debt, net of the current portion. At December 31,
2016 and 2015, the Company had approximately $0.6 million and $0.4 million, respectively, of debt issuance costs related to the
above transactions, which are being amortized over the life of the agreements. Unspent proceeds from the arrangement of approximately
$1.3 million and $12.0 million at December 31, 2016 and 2015, respectively, are obligated for funding the specified capital assets
at the Barnwell facility and are included in restricted cash.



Note 13—ODFA Pooled Financing



In September 2014,
the Company entered into an agreement with the Oklahoma Development Finance Authority (“ODFA”) whereby the ODFA agreed
to provide the Company up to $3.5 million to fund a portion of the cost of a new paper production line before September 1, 2020.
The agreement provides for the Oklahoma state withholding payroll taxes withheld by the Company from its employees to be placed
into the Community Economic Development Pooled Finance Revolving Fund – Orchids Paper Products (“Revolving Fund”).
Each year on September 1, beginning in 2015 and ending in 2020, the ODFA will return these state withholding taxes in the Revolving
Fund to the Company, up to an amount totaling $3.5 million. These amounts are recognized as a note receivable in other current
assets in the consolidated balance sheet and in other income in the consolidated statements of income as they are withheld from
employees. As of December 31, 2016 and 2015, the Company had a note receivable of $536,000 and $328,000, respectively, related
to amounts due under the ODFA pooled financing agreement. The Company recognized income of $667,000, $685,000 and $213,000 in
2016, 2015 and 2014, respectively, related to this agreement.



Note 14—Employee Incentive
Bonus and Retirement Plans



The Company sponsors
three separate defined contribution plans covering substantially all employees. Company contributions are based on either a percentage
of participant contributions or as required by collective bargaining agreements. Participants immediately vest in Company contributions
to each of the three plans. Contribution expense recognized by the Company was $983,000, $579,000, and $496,000, for the years
ended December 31, 2016, 2015 and 2014, respectively.



33







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 15—Selected Quarterly Financial Data
(Unaudited)



|                                  |  | 2016                                  |       
|--------------------------------- |  | ------------------------------------- | ------
|                                  |  | First                                 |       
|                                  |  | Quarter                               |       
|                                  |  | (In thousands, except per share data) |       
|Sales                             |  | $                                     | 47,743
|Gross profit                      |  |                                       | 11,381
|Operating income                  |  |                                       | 8,282 
|Net income                        |  |                                       | 5,409 
|Basic earnings per common share   |  | $                                     | 0.53  
|Diluted earnings per common share |  |                                       | 0.52  
|Dividends per share               |  |                                       | 0.35  
|Price per common share            |  |                                       |       
|High                              |  | $                                     | 30.54 
|Low                               |  |                                       | 24.80 



|                                  |  | 2015                                  |       
|--------------------------------- |  | ------------------------------------- | ------
|                                  |  | First                                 |       
|                                  |  | Quarter                               |       
|                                  |  | (In thousands, except per share data) |       
|Sales                             |  | $                                     | 37,415
|Gross profit                      |  |                                       | 4,786 
|Operating income                  |  |                                       | 1,912 
|Net income                        |  |                                       | 1,236 
|Basic earnings per common share   |  | $                                     | 0.14  
|Diluted earnings per common share |  |                                       | 0.14  
|Dividends per share               |  |                                       | 0.35  
|Price per common share            |  |                                       |       
|High                              |  | $                                     | 29.01 
|Low                               |  |                                       | 25.35 



Note 16—Follow-On Stock Offering and Registration
of Securities



In April 2015, the
Company completed an underwritten public follow-on offering of 1,500,000 shares of its common stock at $23.00 per share. The underwriters
were granted an option to purchase up to an additional 225,000 shares for a period of 30 days, which was not exercised. Net proceeds
to the Company were $32.1 million, after giving effect to expenses incurred related to the offering.



On September 16, 2015,
the Company’s shelf Registration Statement on Form S-3 (the “Registration Statement”) was declared effective
by the Securities and Exchange Commission. Pursuant to the Registration Statement, the Company, from time to time, may sell common
stock, warrants or units comprised of the other securities described in the Registration Statement, in a single or multiple offerings
up to a total dollar amount of $50,000,000, at prices and terms that will be determined at the time of the offering.



The Company’s
willingness and ability to raise capital pursuant to the Registration Statement will depend upon a number of circumstances, including,
without limitation, the Company’s need for additional capital to fund operations, organic growth or acquisitions, the Company’s
financial and operating performance and the receptiveness of the capital markets to potential offerings by the Company. As of
the date of this report, the Company does not have any agreements with respect to the issuance of securities pursuant to the Registration
Statement.



34







ORCHIDS PAPER
PRODUCTS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



December 31, 2016,
2015 and 2014



Note 17—Subsequent Events



Dividend



On February 14, 2017,
the Board of Directors authorized a quarterly cash dividend of $0.35 per outstanding share of the Company’s common stock
to be paid on April 3, 2017 to stockholders of record at the close of business on February 27, 2017.





35







PART IV



Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a)(1) Financial Statements



The information required
by this item is included in Item 8 of Part II of this report.



(a)(2) Financial Statement Schedules



Schedule II—Valuation
and Qualifying Accounts is included below. The rest of the schedules required by this item have been omitted as they are not required,
not applicable or are included in Item 8 of Part II of this report.



Orchids Paper Products Company and Subsidiaries

Schedule II - Valuation and Qualifying
Accounts

Years ended December 31, 2014, 2015 and
2016



|                             |  |              |     |  | Charged        |   |      | Charge-off |  |   |               |  
|---------------------------- |  | ------------ | --- |  | -------------- | - | ---- | ---------- |  | - | ------------- | -
|                             |  | Balance at   |     |  | (Credited) to  |   |      | Against    |  |   |               |  
|                             |  | Beginning of |     |  | Costs and      |   |      | Allowances |  |   | Balance at    |  
|                             |  | Period       |     |  | Expenses       |   |      | (1) (2)    |  |   | End of Period |  
|                             |  |              |     |  | (In thousands) |   |      |            | 
|Accounts Receivable Reserve: |  |              |     |  |                |   |      |            |  |   |               |  
|Year ended December 31, 2014 |  |              |     |  |                |   |      |            |  |   |               |  
|Bad Debt Reserve             |  | $            | 135 |  |                | $ | 19   |            |  | $ | (1            | )
|Year ended December 31, 2015 |  |              |     |  |                |   |      |            |  |   |               |  
|Bad Debt Reserve             |  |              | 155 |  |                |   | -    |            |  |   | -             |  
|Year ended December 31, 2016 |  |              |     |  |                |   |      |            |  |   |               |  
|Bad Debt Reserve             |  |              | 155 |  |                |   | (125 | )          |  |   | -             |  
|                             |  |              |     |  |                |   |      |            |  |   |               |  
|Inventory Valuation Reserve: |  |              |     |  |                |   |      |            |  |   |               |  
|Year ended December 31, 2014 |  |              |     |  |                |   |      |            |  |   |               |  
|Inventory Valuation Reserve  |  | $            | 105 |  |                | $ | 193  |            |  | $ | 100           |  
|Year ended December 31, 2015 |  |              |     |  |                |   |      |            |  |   |               |  
|Inventory Valuation Reserve  |  |              | 198 |  |                |   | 239  |            |  |   | 296           |  
|Year ended December 31, 2016 |  |              |     |  |                |   |      |            |  |   |               |  
|Inventory Valuation Reserve  |  |              | 141 |  |                |   | 434  |            |  |   | 510           |  



(1) Write-off of uncollectible accounts, net of recoveries

(2) Write-off of obsolete inventory and physical inventory
adjustments



(b)   Exhibits



See the Exhibit Index following the signature page
to this Form 10-K/A, which Exhibit Index is hereby incorporated by reference herein.



36







SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.





|                     | ORCHIDS PAPER PRODUCTS COMPANY |                        
|-------------------- | ------------------------------ | -----------------------
|                     |                                |                        
|                     |                                |                        
|Date: March 30, 2017 | By:                            | /s/ RODNEY D. GLOSS    
|                     |                                | Rodney D. Gloss        
|                     |                                | Chief Financial Officer





37







Exhibit Index



|Exhibit |                                                                                                                                                                                                                                                                                                                                 
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                 
|3.1     | Amended and Restated Certificate of Incorporation of the Registrant dated May 17, 2013, incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (SEC Accession No. 0001104659-13-058279) filed with the SEC on July 31, 2013.                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                 
|3.2     | Amended and Restated Bylaws of the Registrant amended May 17, 2013, incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q (SEC Accession No. 0001104659-13-058279) filed with the SEC on July 31, 2013.                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                 
|4.1     | Specimen Stock Certificate, incorporated by reference to Exhibit 4.1 to the Registrant's Amendment No. 2 to its Registration Statement on Form S-1/A (SEC Accession No. 0000950137-05-007858) filed with the SEC on June 24, 2005.                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                 
|10.1#   | Form of Incentive Stock Option Agreement incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (SEC Accession No. 0000950138-09-000048) filed with the SEC on January 26, 2009.                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                 
|10.2#   | Orchids Paper Products Company Stock Incentive Plan, amended May 19, 2011, incorporated by  reference to Exhibit 10.1 to the Registrant's Form S-8 (SEC Accession No. 0000950138-11-000411) filed with the SEC on July 1, 2011.                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                 
|10.3#   | Orchids Paper Products Company 2014 Stock Incentive Plan, incorporated by reference to the Registrant’s Definitive Proxy Statement (SEC Accession No. 0001047469-14-001834) filed with the SEC on March 5, 2014.                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                 
|10.4#   | Employment Agreement dated February 27, 2009 and effective as of March 1, 2009, between Keith R. Schroeder and the Registrant, incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (SEC Accession No. 0000950138-09-000171) filed with the SEC on March 2, 2009.                           
|        |                                                                                                                                                                                                                                                                                                                                 
|10.5#   | Executive Employment Agreement effective as of November 8, 2013, between the Registrant and Jeffrey S. Schoen, incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A (SEC Accession No. 0001144204-14-004735) filed with the SEC on January 29, 2014.                                      
|        |                                                                                                                                                                                                                                                                                                                                 
|10.6#   | Nonqualified Stock Option Agreement effective as of November 8, 2013, between the Registrant and Jeffrey S. Schoen, incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8- K/A (SEC Accession No. 0001144204-14-004735) filed with the SEC on January 29, 2014.                                
|        |                                                                                                                                                                                                                                                                                                                                 
|10.7*   | Supplier Agreement dated February 20, 2008 and effective as of April 1, 2008, between Dixie Pulp & Paper, Inc. and the Registrant, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q (SEC Accession No. 0000950137-080-00) filed with the SEC on May 2, 2008.                                             
|        |                                                                                                                                                                                                                                                                                                                                 
|10.8    | Asset Purchase Agreement, dated as of May 5, 2014, among the Registrant, Orchids Mexico (DE) Holdings, LLC and Fabrica de Papel San Francisco, S.A. de C.V., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (SEC Accession No. 0001104659-14-034678) filed with the SEC on May 5, 2014.
|        |                                                                                                                                                                                                                                                                                                                                 
|10.9#   | Orchids Paper Products Company Annual Bonus Plan, incorporated by reference to the Registrant’s Form 10-K (SEC Accession No. 0001437749-15-004472) filed with the SEC on March 9, 2015.                                                                                                                                         





38









|Exhibit |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10   | Second Amended and Restated Credit Agreement, dated as of June 25, 2015, among Orchids, U.S. Bank National Association, as administrative agent, lead arranger and sole book runner, the lenders named therein, and  JPMorgan Chase Bank, N.A., as documentation agent, incorporated by reference to the Registrant’s Current Report on Form 8-K (SEC Accession No. 0001144204-15-039721) filed with the SEC on June 29, 2015.                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.11   | Amendment No. 1 to Second Amended and Restated Credit Agreement, dated as of November 6, 2015, among Orchids and U.S. Bank National Association, as administrative agent, incorporated by reference to the  Registrant’s Form 10-Q (SEC Accession No. 0001437749-15-020194) filed with the SEC on November 9, 2015.                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.12   | Amendment No. 2, dated as of December 29, 2015, to Second Amended and Restated Credit Agreement, dated as of June 25, 2015, among Orchids and U.S. Bank National Association, as administrative agent, incorporated by reference to the Registrant’s Current Report on Form 8-K (SEC Accession No. 0001437749-16-023119) filed with the SEC on January 5, 2016.                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13   | Amendment No. 3, dated as of January 19, 2017 to Second Amended and Restated Credit Agreement, dated as of  June 25, 2015, among Orchids and U.S. Bank National Association, as administrative agent, incorporated by reference to the Registrant’s Current Report on Form 8-K (SEC Accession No. 0001144204-17-003431) filed with the SEC on January 23, 2017.                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.14## | Form of Indemnification Agreement between the Registrant and each of its Directors and Officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|21##    | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|23.1    | Consent of Independent Registered Public Accounting Firm—HoganTaylor LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.1    | Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey S. Schoen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.2    | Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Rodney D. Gloss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|32.1    | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jeffrey S. Schoen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|32.2    | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Rodney D. Gloss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101##   | The following financial information from Orchids Paper Products Company's Annual Report on Form 10- K for the fiscal year ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the fiscal years ended December 31, 2016, 2015 and 2014, (ii) Consolidated Balance Sheets as of December 31, 2016 and 2015, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended December 31, 2014, 2015 and 2016, (iv) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2016, 2015 and 2014, and (v) Consolidated Notes to Financial Statements.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|#       | Indicates management contract or compensatory plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|##      | Previously filed with our Annual Report on Form 10-K filed on March 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|*       | Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



39